Question

Yard Professionals Inc. experienced the following events in Year 1, its first year of operation:

1. Performed services for $35,000 cash.
2. Purchased $6,000 of supplies on account.
3. A physical count on December 31, Year 1, found that there was $1,800 of supplies on hand.
Required:
Based on this information alone:
a. Record the events in general ledger accounts under an accounting equation.
b. Prepare an income statement, balance sheet, and statement of cash flows for the Year 1 accounting period.
c. What is the balance in the Supplies account as of January 1, Year 2?
d. What is the balance in the Supplies Expense account as of January 1, Year 2?

Answer 1

Answer: The balance in the Supplies Expense account as of January 1, Year 2 would be zero.

Step-by-step explanation:

a.

Event 1:

Debit Cash $35,000

Credit Revenue $35,000

Event 2:

Debit Supplies $6,000

Credit Accounts Payable $6,000

Event 3:

Debit Supplies Expense $1,800

Credit Supplies $1,800

b.

Income Statement

Revenue: $35,000

Expenses: $1,800

Net Income: $33,200

Balance Sheet

Assets:

Cash: $35,000

Supplies: $4,200

Total Assets: $39,200

Liabilities:

Accounts Payable: $6,000

Total Liabilities: $6,000

Equity:

Retained Earnings: $33,200

Total Equity: $33,200

Total Liabilities and Equity: $39,200

Statement of Cash Flows

Cash Flows from Operating Activities:

Cash Received from Customers: $35,000

Cash Paid for Supplies: $6,000

Net Cash Flows from Operating Activities: $29,000

c. The balance in the Supplies account as of January 1, Year 2 would be $4,200. This is calculated by taking the $6,000 of supplies purchased on account and subtracting the $1,800 of supplies counted on December 31, Year 1.

d. The balance in the Supplies Expense account as of January 1, Year 2 would be zero. This is because all of the supplies were used up and recorded as an expense in Year 1.