1. AC 113- Unit 3
Chapter 2

2. Learning Objectives
After studying the chapter, your students should be able to:
Describe the basic elements of a financial accounting information system.
Analyze, record, and summarize transactions for a corporation’s first period of operations.
Prepare financial statements for a corporation’s first period of operations.
Analyze, record, and summarize transactions for a corporation’s second period of operations
Prepare financial statements for a corporation’s second period of operations.

3. Accounting Formula
Assets = Liabilities + Owners Equity

4. Jim Hamilton began a lawn care business in May by depositing $800 in a business bank account in exchange for capital stock.

5. Cash Supplies N/P Capital R.E. 1. 800 800 Investment

6. Borrowed $1,000 by issuing a note payable.

7. Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2
Cash Supplies N/P Capital R.E Investment Bal ,000 1,000 Bal. 1,800 1,

8. Paid cash for supplies, $50.

9. Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2
Cash Supplies N/P Capital R.E Investment Bal ,000 1,000 Bal. 1,800 1, Bal. 1, ,

10. Performed lawn care services for cash and received $700.

11. Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2
Cash Supplies N/P Capital R.E Investment Bal ,000 1,000 Bal. 1,800 1, Bal. 1, , Revenue Bal. 2, ,

12. Paid for an advertisement in a local newspaper, $150.

13. Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2
Cash Supplies N/P Capital R.E Investment Bal ,000 1,000 Bal. 1,800 1, Bal. 1, , Revenue Bal. 2, , Adv. Exp. Bal. 2, ,

14. Performed lawn care services for cash customers and received $420.

15. Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2
Cash Supplies N/P Capital R.E Investment Bal ,000 1,000 Bal. 1,800 1, Bal. 1, , Revenue Bal. 2, , Adv. Exp. Bal. 2, , Revenue Bal. 2, ,

16. Paid wages to a part-time assistant, $85.

17. Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2
Cash Supplies N/P Capital R.E Investment Bal ,000 1,000 Bal. 1,800 1, Bal. 1, , Revenue Bal. 2, , Adv. Exp. Bal. 2, , Revenue Bal. 2, , Wage Exp. Bal. 2, ,

18. Performed lawn care services for cash and received $600.

19. Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2
Cash Supplies N/P Capital R.E Investment Bal ,000 1,000 Bal. 1,800 1, Bal. 1, , Revenue Bal. 2, , Adv. Exp. Bal. 2, , Revenue Bal. 2, , Wage Exp. Bal. 2, , Revenue Bal. 3, , ,485

20. At the end of May, Jim’s Lawn Care paid dividends of $100.

21. Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2
Cash Supplies N/P Capital R.E Investment Bal ,000 1,000 Bal. 1,800 1, Bal. 1, , Revenue Bal. 2, , Adv. Exp. Bal. 2, , Revenue Bal. 2, , Wage Exp. Bal. 2, , Revenue Bal. 3, , , Dividend Bal. 3, ,

22. Statement of Cash Flows Income Statement 1. Financing 800 4
Statement of Cash Flows Income Statement 1. Financing Lawn Care Revenue Financing 1, Advertising Expense – Operating –50 6. Lawn Care Revenue Operating Wage Expense –85 5 Operating – Lawn Care Revenue Operating 420 Net Income $1, Operating –85 8. Operating Financing –100 Increase in Cash $3,135

23. Jim’s Lawn Care Income Statement For the Month Ended May 31, 20— Fees earned $1,720 Operating expenses: Advertising expense $150 Wage expense $ 85 Total operating expenses $ 235 Net income $1,485 Retained Earnings Statement Net income for May $1,485 Less dividends $ 100 Retained earnings, May 31 $1,385

24. Jim’s Lawn Care Balance Sheet May 31, 20— Assets Cash $3,135 Supplies $ 50 Total Assets $3,185 Liabilities Notes payable $1,000 Stockholders’ Equity Capital stock $ 800 Retained earnings $1,385 $2,185 Total liabilities and stockholders’ equity $3,185

25. Jim’s Lawn Care Statement of Cash Flows For the Month Ended May 31, 20— Cash flows from operating activities: Cash received from customers $1,720 Cash paid for advertising $ (150) Cash paid for wages $ (85) Cash paid for supplies $ (50) Cash flows from operating activities $1,435 Cash flows from investing activities: Cash flows from financing activities: Cash rec. from issuing capital stock $ 800 Cash received from notes payable $1,000 Cash paid for dividends $ (100) Cash flows from financing activities $1,700 Net increase in cash during May $3,135 Cash as of May 1 $ –0– Cash as of May 31 $3,135