Practical Application of the Balance Sheet.pptx

I am David K., an Accounting Assignment Expert at DoMyAccountingAssignment.com. I hold a PhD in Finance Accounting from the University of Crestview. With over 5 years of experience, I specialize in assisting students with their Financial Accounting assignments. In our sample assignment solution, we explore the use of the Balance Sheet Equation to record transactions

Visit www. DoMyAccountingAssignment.com or email [email protected]. You can also call on [phone]for any assistance with Financial Accounting Assignment.

1. Do My Accounting Assignment Topic : Financial Accounting Essentials Visit: www.domyaccountingassignment.com Mail: [email protected] Contact: [phone]

2. Welcome to the sample assignment provided by DoMyAccountingAssignment.com, where we unravel the complexities of accounting through practical examples. In this sample, we explore the use of the Balance Sheet Equation to record transactions. By examining a series of transactions for TIM, Inc., you'll learn how to accurately record financial activities and prepare financial statements. This example will help you understand how to maintain a balanced and accurate financial record, ensuring a true representation of a company's financial health. Practical Application of the Balance Sheet Equation in Accounting

3. Question 1 Use of the Balance Sheet Equation to record transactions and for the preparation of financial statements On July 1, 2000, TIM, Inc. started as a business entity. A summary of transactions through December 31, 2000 is presented below. Stockholders invested $50,000 in cash in Bank Boston in the name of the business. New computer equipment is purchased for $6,000 in cash. Equipment will be used for 3 years.

4. 3. Office rent for half a year is paid in advance, $8,000. 4. Dividends of $500 paid to existing shareholders. 5. Paid $10,000 to employees for services provided. 6. Paid utility bills, $2000. 7. Provided (and completed) design services on account to customers, $30,000. 8. Collected cash of $2,000 for services billed in 7.

5. Required Prepare a tabular analysis of the transactions using the Balance Sheet Equation (BSE) through December 31, 2000. Be sure to label your transactions. Prepare the balance sheet as of December 31, 2000. From what part of the BSE table did you get the information to prepare the balance sheet? Prepare the income statement for the period from July 1, 2000 through December 31, 2000. From what part of the BSE table did you get the information to prepare the income statement?

6. d) How much cash flowed in and out of TIM, Inc. in the period from July 1, 2000 through December 31, 2000? How much of this cash inflow or outflow do you consider relevant to TIM, Inc.’s operations? e) Compare the net cash flow that is considered relevant to operations (from (d) above) and TIM, Inc.’s profits in the same period. What transactions and events account for the difference? f) Which of the accounts you created in the BSE table are considered “temporary”, and which ones are considered “permanent”? Briefly explain the difference.

7. Answer: a) Tabular Analysis of Transactions using BSE We'll use the Balance Sheet Equation (Assets = Liabilities + Owner's Equity) to analyze the transactions:

8. b) Balance Sheet as of December 31, 2000 From the BSE table, the Balance Sheet is prepared as follows: Balance Sheet:

9. c) Income Statement for July 1, 2000, through December 31, 2000 Income Statement

10. d) Cash Flow Analysis Cash flowed in: Stockholders' investment: $50,000 Service revenue collected: $2,000 Cash flowed out: Equipment purchase: $6,000 Office rent payment: $8,000 Dividends paid: $500 Wages paid: $10,000 Utility bills paid: $2,000

11. Total cash flow in: $52,000 Total cash flow out: $26,500 Net cash flow: $25,500 Relevant cash flow to operations: Service revenue collected: $2,000 Wages paid: $10,000 Utility bills paid: $2,000 Relevant cash flow total: $14,000

12. e) Comparison of Net Cash Flow and Net Income Net cash flow relevant to operations: $14,000 Net income: $22,000 Difference: $22,000 (Net Income) - $14,000 (Relevant cash flow) = $8,000 Transactions accounting for the difference: Non-cash expenses (e.g., depreciation of equipment) Changes in working capital (e.g., increase in accounts receivable)

13. f) Temporary vs. Permanent Accounts Temporary Accounts (closed at the end of the accounting period): Revenue accounts (Service Revenue) Expense accounts (Wages Expense, Utilities Expense) Permanent Accounts (carry balances forward): Asset accounts (Cash, Accounts Receivable, Equipment) Liability accounts (Common Stock, Retained Earnings, Prepaid Rent)

14. Temporary accounts relate to specific accounting periods and are closed at the end of each period to the retained earnings account. Permanent accounts carry balances forward from one accounting period to the next and include asset, liability, and equity accounts. Explanation:

15. From this question, we learn the practical application of the Balance Sheet Equation in recording transactions and preparing financial statements for TIM, Inc. We understand the impact of business activities on cash flow, the distinction between temporary and permanent accounts, and how these elements contribute to assessing financial health and performance. Conclusion: