Accounting and Finance Foundations

Unit 7

Accounting and Finance Foundations Unit 7: Financial Statements 562

Financial Statements

Chapter 18

2.3.9

Assume that the figures below are the final totals in an example of an adjusted trial balance. How would

you organize these totals into a financial statement?

Assets - Liabilities + Owner’s Equity

Cash + Supplies + Prepaid

Insurance

• Accounts
  Payable/ Allen
  Company

+ Whitney

Newhouse,

Capital

+ Sales - Expenses

2,450 + 540 + 215 = 140 + 3,000 + 1,470 - 1,405

Here is what the balance sheet based on those figures should look like:

Lesson 18.3

Student Guide

The Balance Sheet (cont’d)

Assets = Liabilities + Owner’s Equity

Trans.
No.

Cash + Supplies + Accounts

Receivable,

Lisa Cook

+ Prepaid

Insurance

= Accounts

Payable

Office

Supply

+ Your

Name,

Capital

+ Sales - Expenses - Drawing

1. 7500 + + + = + 7500 + - -


2. -300
   7200

+ +300 + + = + 7500 + - -

3. -550
   6650

+ 300 + + +550 = + 7500 + - -

Name of Company

Balance Sheet

May 30, 20XX

Assets Liabilities

Cash 2,450 Allen Company 140

Supplies 540 Owner’s Equity

Prepaid Insurance 215 Whitney Newhouse, Capital 3,065

Total Assets 3,205 Total Liabilities and Owner’s Equity 3,205

You may be asking yourself, “Why is my capital amount different, and where are sales and expenses?”

Sales and expenses have a direct effect on the owner’s equity in the company. To simplify the balance

sheet, the capital figure represents capital, sales, and expenses. To get the correct figure, you take the end-

ing capital + sales - expenses. For this problem, 3,000 + 1,470 - 1,405 = 3,205.

Adjusting Entries

A write-off of accounts receivable, which is reported on the balance sheet, has no effect on income be-

cause, as you’ll recall, the allowance approach bases any bad debt expense on an estimate. The write-off is

simply a removal of the receivable and a reduction of the allowance account. You would record the adjust-

ing entry as follows:

06/30/20YY Debit Credit

Allowance for Doubtful Accounts $500

Accounts Receivable $500

To record the write-off of a $500 accounts receivable for customer S.