ACCT 615
Accounting Concepts for Managers
Professor Asokan Anandarajan
E-mail: anandarajan@adm.njit.edu
Voice-mail: 973.596.8568
Module 3
Financial Reports And Recording Financial
Transactions
1
Financial Reports
Ø Income Statement
Revenue
Expenses
Revenue - Expenses = Profit
2
Ø Statement of Owner’s Equity
Capital
Profit
Drawings
Owner’s Equity = Capital + Profit - Drawings
3
Ø Balance Sheet
Assets
Liabilities
Owner’s Equity
Networth = Assets - Liabilities
Networth = Owner’s Equity
4
Balance Sheet
Assets Liabilities
Current Assets Current Liabilities
Cash Accounts payable
Accounts Receivable Notes payable
Inventory
Property Plant and Equipment Long Term Liabilities
Mortgage payable
Land
Building Owner’s Equity
Total XXX XXX
Should Balance
5
Problem
On April 1, Polly Darton established the in Double
Surprise Travel Agency in Hickory, Arkansas. The
following were completed during the month.
1. Invested $10,000 cash to start the agency
2. Paid $4,000 cash for April office rent.
3. Purchased office equipment for $2,500 cash.
4. Incurred $13,000 of advertising costs in the Hickory
Tribune on account.
5. Paid $6,000 for office supplies.
6. Earned $59,500 for services rendered; $40,000 cash
is received from customers, and the balance of
$19,500 is billed to customers on account.
6
6
Problem
7. Withdrew $30,000 for personal use.
8. Paid the Arkansas Tribune $10,000 being part
payment of the amount owed in transaction (4).
9. Paid employees salaries of $5,000.
10. Received $10,000 cash from customers who have
previously been billed in transaction (6).
11. Obtained cash loan from the local bank, $50,000.
12. Purchased a motor vehicle from the local dealer, the
Arkansas Car Mart for $30,000 on account.
7
Required
1. Record the transactions in the format shown in the
next PowerPoint slide
2. After recording prepare an Income Statement,
Statement of Owner’s Equity and Balance Sheet for
the Double Surprise Travel Agency.
3. What is the Networth of the Double Surprise Travel
Agency?
4. What is the liquidity position of the Double Surprise
Travel Agency?
5. What is the solvency position of the Double Surprise
Travel Agency?
8
Assets Liabilities Owner’s Equity
Cash Office Supplies Accounts Vehicle Accounts Bank Loan
Equipment Receivable Payable
1. +10,000 +10,000 (Capital)
2. –4,000 -4,000 (Rent
Expenses)
3. –2,500 +2,500
13,000 -13,000 (Advertising
4. Expenses)
5. –6,000 +6,000
6. +40,000 +19,500 + 59,500 (Revenue)
7. –30,000 -30,000 (Drawings)
8. –10,000 -10,000
-5,000 (Salary
9. –5,000 Expenses)
10. +10,000 -10,000
11. +50,000 +50,000
12. +30,000 +30,000
52,500 2,500 6,000 9,500 30,000 33,000 50,000 17,500
9
Double Surprise Travel Agency
Income Statement
Revenue 59,500
Expenses
Rent 4,000
Advertising 13,000
Salary 5,000 22,000
Profit (Net Income) 37,500
10
10
Double Surprise Travel Agency
Statement of Owner’s Equity
Capital 10,000
+ Profit 37,500
47,500
Drawings 30,000
Owner’s Equity 17,500
11
11
Double Surprise Travel Agency
Balance Sheet
Assets Liabilities
Current Assets Current Liabilities
Cash 52,500 Accounts 33,000
Accounts 9,500 Payable
Receivable Long Term Liabilities
Supplies 6,000 Loan 50,000
Property Plant and Equipment
Equipment 2,500
Owner’s Equity 17,500
Vehicle 30,000
100,500 100,500
12
12
Networth = Assets - Liabilities
= 100,500 - 83,000
= 17,500
Liquidity Can Business Generate enough cash to pay off bills
Current assets
=
Current liabilities
68,000
= 33,000
= 2.06
Solvency Can Business Survive in the long term?
Total Debt
=
Total Assets
83,000
= = 82.5%
100,500
13
ACCT 615
Accounting Concepts for Managers
Professor Asokan Anandarajan
E-mail: anandarajan@adm.njit.edu
Voice-mail: 973.596.8568
Module 3
Financial Reports And Recording Financial
Transactions
14
