Question

The following business transactions relate to Sarah Simone for her first month of business operations in January 2017. All relevant transactions include 10% GST.

2017                      

January    1             Commenced business operations with a $300 000 cash injection of personal funds.

                2              Paid monthly rent $1650.

                4              Purchased office stationery $2200 on credit from WorksOffice.

                7              Purchased office equipment on credit from Supplies Inc. $11000.

                9              Sent invoice to client M. Lewis for services $3300.

                11           Purchased new computer for cash $770.

                13           M. Lewis paid amount outstanding.

14           Met with prospective client and negotiated the provision of financial advice for client and family quoting $5500.

15           Made credit sales of $1100.

                17           Paid car parking expense $220.

                19           Withdrew cash from business $2200 for personal use.

                22           Paid WWW Ltd for monthly internet use $198.

                29           Received interest from business bank account $22.

                31           Wages expense for the month is $550. PAYG is $50. The wages will be paid next month.

                31           Depreciation expense $500.

                31           A stocktake at the end of the month shows office stationery supplies on hand of $2000.

Required:

Prepare an income statement in good format.

Answer 1

Please see the attached image

Comments:

1. Infusion of Capital $300,000 is a capital transaction and therefore not recorded in Income statement

4. Office stationery consumption is recorded, balance is parked under Current Assets as Stock in Hand $2,000

7. Office Equipment is a capital asset and hence recorded under Property, Plant and Equipment in Balance Sheet

11 Computer is a capital asset and hence recorded under Property, Plant and Equipment in Balance Sheet

14 Income not accrued unless service provided. ,Mere negotiation doesnt warrant an entry in books of accounts

19 Cash withdrawal doesnt affect income statement

31 Wages are recorded on accrual basis and not payment basis