Problem Solving - Chapter 1

©Gayle M. Richardson, CPA

The Information Given to You:

Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000

The Information Given to You:

Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000

These balances represent the ending balances in the accounts after all of the transactions have been posted.

Think!

What is the ultimate goal? The question asks for Total Assets,

Supplies, Net income and Capital at the end of the year.

How can I get these answers and be certain my answers are correct?

If you think of all of the reports you have prepared, are there any that could be used as a template that would help you solve this problem?

YES --- the basic financial statementsIncome statementStatement of owner’s equityBalance Sheet

The Basic TemplatesIncome Statement

Revenue

Less Expenses

Net Income

Balance Sheet

Assets = L + OE

Assets Liabilities

_____

Total Liabil,

OE:

Cap, EB Total Assets Total L+ OE

Stmnt of OE

BBAdd cont ___________Sub-totalNI ___________ Sub-totalLess W/D___________EB

Now What?

Look back at the information given and put each number on the template in its proper place.

The Information Given to You:

Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000

The Basic TemplatesIncome Statement

Revenue

Less Expenses

Net Income

Balance Sheet

Assets = L + OE

Assets Liabilities

_____

Total Liabil,

OE:

Cap, EB Total Assets Total L+ OE

Stmnt of OE

BBAdd cont ___________Sub-totalNI ___________ Sub-totalLess W/D___________EB

Advertising Expense 2,500

The Information Given to You:

Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000

Now- Check it off the list!

The Information Given to You:

Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000

Next - Accounts Payable -- Where does it belong?

The Basic TemplatesIncome Statement

Revenue

Less Expenses Advertising Expense 2,500

Net Income

Balance Sheet

Assets = L + OE

Assets Liabilities

_____

Total Liabil,

OE:

Cap, EB Total Assets Total L+ OE

Stmnt of OE

BBAdd cont ___________Sub-totalNI ___________ Sub-totalLess W/D___________EB

Accounts Payable 1,000

The Information Given to You:

Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000

Now- Check it off the list!

The Information Given to You:

Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000

Next - Accounts Receivable- What is it?

An Asset---Yes! The Balance Sheet is where it belongs!

The Basic TemplatesIncome Statement

Revenue

Less ExpensesAdvertising Exp 2,500

Net Income

Balance Sheet

Assets = L + OE

Assets Liabilities

Accounts Pay 1,000

OE:

Cap, EB Total Assets Total L+ OE

Stmnt of OE

BBAdd cont ___________Sub-totalNI ___________ Sub-totalLess W/D___________EB

Accounts Rec 4,000

The Information Given to You:

Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000

Now- Check it off the list!

What next?

Repeat the process -- until you have checked off all of the items on the list!

Accounting is very systematic and methodical-----Step by Step!

Don’t worry --- once you have learned the basics you will be able to move at a quicker pace

Thank Goodness for Computers!!!!!

The Basic TemplatesIncome Statement

Revenue

Less ExpensesAdvertising Exp 2,500

Net Income

Balance Sheet

Assets = L + OE

Assets Liabilities

Accounts Pay 1,000

OE:

Cap, EB Total Assets Total L+ OE

Stmnt of OE

BBAdd cont ___________Sub-totalNI ___________ Sub-totalLess W/D___________EB

Accounts Rec 4,000

Cash 12,000

Fees Earned 13,000

Supplies ?

Rent expense 3,000

Remt Payable 1,000

11,000

?

4,000Now we have all of the numbers from the test in their places!

The Information Given to You:

Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000

And ---your list should look like this!

Notice that we transferred the Question marks too!

Now for the Bais Math!Income Statement

Revenue Fees Earned $ 13,000

Less ExpensesAdvertising Expense 2,500Rent Expense 3,000

Net Income

Balance Sheet

Assets = L + OE

Assets Liabilities

Cash $12,000 Accounts Payable $1,000 Accounts Rec. 4,000 Rent Payable 1,000

Supplies ?

OE:

Cap, EB Total Assets Total L+OE

Stmnt of OE

BB 11,000 Add cont ___________Sub-totalNI ___________ Sub-totalLess W/D______ 4,000EB ?

Now add & subtract!Start with the Income Statement--then SOE and, last, the Balance Sheet!

Total expenses 5,500

$ 7,500 ====

7 ,500

-0-

11,000

18,500

$14,500

14,500

__________ 2,000

$16,500$16,500

500

16,500--12,000-4,000 = 500

Now for the Bais Math!Income Statement

Revenue Fees Earned $ 13,000

Less ExpensesAdvertising Expense 2,500Rent Expense 3,000

Net Income

Balance Sheet

Assets = L + OE

Assets Liabilities

Cash $12,000 Accounts Payable $1,000 Accounts Rec. 4,000 Rent Payable 1,000

Supplies ?

OE:

Cap, EB Total Assets Total L+OE

Stmnt of OE

BB 11,000 Add cont ___________Sub-totalNI ___________ Sub-totalLess W/D______ 4,000EB ?

Now add & subtract! Circle the answers!

Total expenses 5,500

$ 7,500 ====

7 ,500

-0-

11,000

18,500

$14,500

14,500

__________ 2,000

$16,500$16,500

500

16,500--12,000-4,000 = 500

The Answers:

Total Assets = $16,500 Supplies = $500 Net Income = $7,500 Capital at year end = $14,500

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