URBAN PATH CO.
FINANCIAL STATEMENTS
ANALYSIS.
Q1. Transaction Categorization
Date Transaction Category Debit Credit
Description
Sep-01 Issued 10,000 Assets ↑, Cash $100,000 Common Stock
shares at $10 Equity ↑ $100,000
each ($100,000
cash)
Sep-03 Purchased Assets ↑, Office Accounts
office furniture Liabilities ↑ Furniture Payable $5,000
on account $5,000
($5,000)
Sep-05 Paid cash for Expense ↑, Advertising Cash $2,000
advertising Assets ↓ Expense
($2,000) $2,000
Sep-07 Received cash Assets ↑, Cash $3,500 Service
for services Income ↑ Revenue
performed $3,500
($3,500)
Sep-09 Paid utility Expense ↑, Utilities Cash $1,500
bills ($1,500) Assets ↓ Expense
$1,500
Sep-12 Paid rent in Asset (Prepaid Prepaid Rent Cash $6,000
advance (3 Rent ↑) $6,000
months,
$6,000)
Sep-15 Performed Assets ↑, Accounts Service
services on Receivable Revenue
account Income ↑ $8,000 $8,000
($8,000)
Sep-20 Paid $3,000 Liabilities ↓, Accounts Cash $3,000
towards office Assets ↓ Payable $3,000
furniture
balance
Sep-25 Paid salaries Expense ↑, Salaries Cash $4,500
($4,500) Assets ↓ Expense
$4,500
Sep-30 Declared and Equity ↓, Dividends Cash $1,000
paid dividend Assets ↓ $1,000
($1,000)
Q2. Overview of Financial Position
At the end of September, Urban Path Co. reports:
- Assets: Cash ($85,000), Office Furniture ($5,000), Prepaid Rent ($6,000), Accounts
Receivable ($8,000) → Total Assets = $104,000.
- Liabilities: Accounts Payable ($2,000) → Total Liabilities = $2,000.
- Equity: Common Stock ($100,000), Revenues ($11,500), Expenses ($8,000), Dividends
($1,000) → Net Equity = $102,500.
This reflects a strong asset-backed position with low liabilities, signaling that the
company is primarily financed through owner equity rather than debt, reducing financial
risk.
Q3. Most Valuable Financial Statement for Investors
As an investor, the Income Statement is most valuable because it highlights profitability,
which directly impacts shareholder returns. For instance, Urban Path Co. earned $11,500
in service revenue but incurred $8,000 in expenses, leaving a net income of $3,500 before
dividends. This shows operational efficiency and growth potential.
While the Balance Sheet demonstrates stability, investors prioritize earnings and
profitability trends, as they determine the likelihood of future dividends and share price
appreciation (Franklin et al., 2022).
Q4. Use of Financial Statements by Stakeholders
- Investors analyze revenues, expenses, and net income to assess return on investment.
For example, Urban Path Co.’s profitability and low liabilities make it attractive for long-
term growth.
- Creditors focus on the Balance Sheet, especially liabilities relative to assets, to evaluate
repayment capacity. With only $2,000 in liabilities, creditors would view the company as
low risk.
- Management uses all statements for decision-making. For example, reviewing the
income statement helps management control expenses, while the balance sheet guides
asset acquisition and financing decisions.
Overall, financial statements ensure transparency and accountability, enabling
stakeholders to make informed economic choices.
References
Franklin, M., Graybeal, P., Cooper, D., Bean, L., Burt, I., Carr, S., Collins, D. T., Coram,
S., Creech, K., Czyzewski, A., … Woolley, D. (2022). Principles of accounting, volume
1: Financial accounting. OpenStax. https://openstax.org/details/books/principles-
financial-accounting
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