The following table provides Acme Corp\'s transaction for the month. Using the P

Question

The following table provides Acme Corp's transaction for the month. Using the PURE CASH BASIS method and only the transactions listed, calculated the firm's NET INCOME for the month. Transaction Value Issued shares of capital stock for cash 21761 Rented space at a self-storage for 2 weeks paid cash -50 Purchased supplies to be used on a job during this month payment due next month -200 Received a loan from a bank to be paid back in 1 year 35366 Received payment from customer for work completed and billed in previous month -1200 Paid miscellaneous expenses 3334 Received payment for customer for work completed and billed during this month 5321 Billed a customer for work completed to be paid in the next month 9824 Paid hourly employees for work completed during the month -2000 Recorded depreciation of office building 1960

Explanation / Answer

The point to note in this is that Net Income statement is recorded on accrual basis and in the transaction values given certain items are source of funds like issuance of equity or debt which go on balance sheet statement, now i will explain each transaction entry given in question and then prepare a Income statement to find Net Income, In these explanations i will mention the amounts only for transactions which will come in this months Income statement for easy understanding

Issued Shares of Capital Stock = Balance Sheet under Share holders Equity

Rented Space at self storage= Income Statement of current period = -50

Purchased Supplies = Income Statement Expenses of current period = -200, Mark another entry on balance sheet in account payables

Received a loan from a bank= balance sheet entry in short term debt

Received payment from customer for work completed and billed in previous month= Income statement of previous month

Paid Miscellaneous expenses = Income statement expenses current month = -3334

Received Payment from customer work completed and billed during this month = income statement Revenues in current month = 5321

Billed a customer for work completed to be paid in next month = Income statement revenues for current month = 9824, mark another entry in account receivables in the balance sheet in assets

Paid hourly employees = Income statemnt expenses = - 2000

Depreciation of office building = Income statement Depreciation expense= -1960

Now, we contruct the Income statement to find net income from above discussed heads

Revenues = 5231+9824 = 15055

Cost of Sales = -200-3334 = -3534

Other Administrative and Fixed expenses = -50-2000 = -2050

Operting profit = 9471

Depreciation Expense= -1960

Assuming no tax and Interest expense in Current Month

Net Income for current Month = 9471-1960 = 7511

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