We-Sell Realty
Income Statement
August 31, 2019
Sales commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140,000
Expenses:
Office salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $87,000
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Automobile expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500
Miscellaneous expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200
Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,850
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,000
Omar Farah
Statement of Owner’s Equity
August 31, 2018
Omar Farah, capital, August 1, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0
Withdrawals during August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,000)
$(10,000)
Investment on August 1, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
$ 5,000
Net income for August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Omar Farah, capital, August 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,000
Balance Sheet
For the Month Ended August 31, 2019
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,900
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,350
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $31,250
Liabilities
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,600
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Owner’s Equity
Omar Farah, capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Total liabilities and owner’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $72,600
Answers:
1. All financial statements should contain the name of the business in their heading. The statement of owner’s equity is incorrectly headed as “Omar Farah” rather than We-Sell Realty. The heading of the balance sheet needs the name of the business.
2. The income statement and statement of owner’s equity cover a period of time and should be labeled “For the Month Ended August 31, 2019.”
3. The year in the heading for the statement of owner’s equity should be 2019 rather than 2018.
4. The balance sheet should be labeled “August 31, 2019,” rather than “For the Month Ended August 31, 2019.”
5. In the income statement, the miscellaneous expense amount should be listed as the last expense.
6. In the income statement, the total expenses are incorrectly subtracted from the sales commissions, resulting in an incorrect net income amount. The correct net income should be $24,150. This also affects the statement of owner’s equity and the amount of Omar Farah, Capital, that appears on the balance sheet.
7. In the statement of owner’s equity, the additional investment should be added first to Omar Farah, capital, as of August 1, 2019. The net income should be presented next, followed by the amount of withdrawals, which is subtracted from the net income to yield the increase in owner’s equity. The increase in owner’s equity is added to Omar Farah, capital on August 1, 2019, to determineOmar Farah, capital on August 31, 2019.
8. Accounts payable should be listed as a liability on the balance sheet.
9. Accounts receivable and supplies should be listed as assets on the balance sheet.
10. The balance sheet assets should equal the sum of the liabilities and owner’s equity.
Corrected financial statements appear as follows:
Sales commissions$140,000
Expenses:
Office salaries expense$87,000
Rent expense18,000
Automobile expense7,500
Supplies expense1,150
Miscellaneous expense2,200
Total expenses115,850
Net income$ 24,150
Omar Farah, capital, August 1, 2019$ 0
Investment on August 1, 2019$ 15,000
Net income for August24,150
Withdrawals during August(10,000)
Increase in owner’s equity29,150
Omar Farah, capital, August 31, 2019$29,150
Cash$ 8,900
Accounts receivable38,600
Supplies4,000
Total assets$51,500
Accounts payable$22,350
Omar Farah, capital29,150
Total liabilities and owner’s equity$51,500