Critical Thinking - Week 1

Assets = Liabilities + Stockholder's Equity

Assets Balance Cash $25,000 Transaction Total New Balance Transaction Total New Balance Transaction Total New Balance Transaction Transaction Total New Balance Transaction Total New Balance Transaction Total New Balance Transaction Total New Balance Transaction Total New Balance ($8,000) $17,000 Accounts Receivable $0 $0 $0 $25,000 $0 $0 $24,200 $0 $23,200 $0 $0 $0 $22,600 $0 $0 $22,200 $0 $0 $21,200 $0 $0 $26,900 $0 $0 $26,900 Supplies $0 $0 $0 $8,000 $8,000 Equipment Liabilities Notes Payable $0 $0 $0 $25,000 ($800) ($800) $0 $8,000 $0 $0 $24,200 ($800) $8,000 $0 $23,200 $0 $0 ($800) $0 $0 $8,000 $0 $0 $0 $22,600 $0 ($800) $0 ($800) $0 $8,000 $0 $8,000 $0 $0 $22,200 $0 $0 $21,200 $0 ($800) $0 ($800) $0 $8,000 $0 $8,000 $0 $0 $26,900 $0 $0 $26,900

$0 $17,000 ($1,000) $16,000

($600)

$15,400

($400) $15,000 ($1,000) $14,000

$5,700 $19,700 $0 $19,700

Chip Shot Driving Range

Income Statement Revenues Service Revenue $5,700 Expenses Amount Amount

Chip Shot Driving

Retained Earnings St Retained earnings as of March 1 Add: Net Income Less: Dividends

Salaries Expense $400 Rent Expense Advertising Expense Utility Expense Total expenses $1,000 $750 $100 $2,250

Retained Earnings as of March 31st

Cash flows Investment Shack Golf balls and clubs Rent Advertising Retrieving golf balls Dividend Balance in account Revenue Total cash inflow Total cash outflow (except investment) Net

Net Income $3,450

Chip Shot Driving Range

Balance Sheet as of March 31st Assets Cash $19,700 Accounts Receivable $0 Supplies ($800)

Equipment $8,000 Total Assets $26,900 Liabilities and Stockholder's Equity Liabilities Accounts Payable ($1,150) Stockholder's Equity Common Stock $25,000 Retained Earnings $3,050 Total Equity $28,050 Total Liabilities and Stockholder's Equity $26,900

Mary and Jack's conclusion that the business operated at a loss of $6,100 was based on the net cash flows of the organization the investments from the owners. This was computed as shown in the Excel file. I therefore can conclude that this is NOT a va on which to determine net income. First, the net cash flows of negative $6,100 include cash flows for long term assets such a caddy shack and the golf balls and golf clubs. Second, there are expenses that have to be included in the determination of net but were not paid during the period. For example, the $150 unpaid advertising expense.

nking - Week 1
Liabilities Stockholder's Equity Retained Accounts Payable Common Stock Earnings $0 $0 $0 $25,000 ($800) ($800) $24,200 ($800) $23,200 ($600) $150 ($1,250) $22,600 $0 ($1,250) $22,200 $0 ($1,250) $21,200 $0 ($1,250) $26,900 $100 ($1,150) $26,900 $25,000

+ Stockholder's Equity
Comments Investment - March 1, $0 2008 Caddy Shack $0 Construction $0 Supplies - Golf balls $0 and clubs $0 ($1,000) Rent ($1,000)

$25,000

$0 $25,000

$25,000

$0 $0 $25,000

$0 Advertising cost paid Advertising costs not ($150) paid ($1,150) Wages paid to high ($400) school golf team ($1,550) ($1,000) Dividends ($2,550) Revenue earned from $5,700 customers $3,150 ($100) Utility Bill not paid $3,050

$0 $25,000 $0 $25,000

$0 $25,000 $0 $25,000

Chip Shot Driving Range

Retained Earnings Statement etained earnings as of March 1 $0 Add: Net Income $3,450 Less: Dividends $1,000

ained Earnings as of March 31st $2,450

Cash flows 25,000 (8,000) (800) (1,000) (600) (400) (1,000) 18,900 5,700 5,700

(11,800) (6,100)

the net cash flows of the organization excluding fore can conclude that this is NOT a valid basis cash flows for long term assets such as the e included in the determination of net income, .