TH E IN COM E S H EET 47

Ne t Efi e ct Income S hee t Re fl e ct e d in B al an ce S h e e t It
of .

should b e n oted agai n at this po in t that th e balan c e sh ee t at an y

ti me S hows t h e c on diti on Of t h e busin e ss afte r t h e tr an saction s in
dica t ed by th e in com e she e t have b e en in c orpo r ate d o n t h e b ooks .

On th e in come she e t just sh own we fi nd that t h e gain has b een

an d th at th e pro p ri e tor has dr awn $ 200 A balan ce she e t .

tak en at this po in t th ere fore will sh ow as c ompar ed with that at

, , ,

t h e b e ginn in g of th e pe ri od an in cre as e o f pr o p ri e t o r ship claim o f

,
-

but th ough it must S h ow at l e ast on e o th e r e ff e ct th e de tail ,

o f that eff e ct will de pe n d upo n circumsta n c e s If all o th er c on di .

tion s exc ept th e profit are th e same as at t h e en d o f t h e pre ce ding

pe riod an d if th e profit is n ow in th e form of cash t h e balan ce
, ,

sh ee t w ill n ow appe a r (suppo sing th e balan ce sh e e t on page 8 t o

b e that of th e b eginn in g o f th e pe riod ) as follows :
Real E s ta t e Pro prie to r
Fix tu r es Accts Payable .

Me rchan dise 2

If, on th e
th e r hand th e un dr awn p rofits had b ee n applied as fast
o , ,

as made t o payin g d ebt th e balan c e sh e e t w ould n ow sh ow C ash

, ,

o nl y o r as it was o n ou r prior balan c e sh e e t an d A cc o u n ts ,

Payable w ould S h ow o nly Th e pr ofit h e r e th e n would , ,

li e in a re ducti on Of d ebt r a th e) than in an in cr e as e o f asse ts In .

o th e r w ords t h e in com e sh ee t d oe s n ot sh ow us in what fo rm th e

,

profit n ow stan ds n or what chan ge s in t h e form o f ass e ts an d lia

,

b ili t ie s have b ee n in vo lv e d in e arni n g th e s e pr ofits It doe s h ow .

,

e v e r sh ow us what Chan ge in pr o pri e tor s o wn er ship claim has

’
-

occu rre d and from what s or ts o f o pe ration s an d w e th ereby kn ow

, ,

h ow much chan ge th ere must b e in e ith e r t h e ass e ts o r t h e liab iliti e s

t o match th e cha n ge in pr opri e to r s own ershi p claim ; fo r n o on e has
’
-

mad e a profit at all unl ess h e has e ith er m or e ass e ts o r f e we r liab ili
ties Onl y a study o f b o th in c om e sh e e t an d balan c e sh e e t will te ll
.

t h e wh ol e story I n de e d t o te ll th e wh ole story w e n e e d t w o bal

.
, ,

an ce sh e e ts an d an in com e sh e e t t h e t w o bala n c e S h e e ts giv e t h e

te rmin als of t h e j ourne y (t h e start an d th e finish) an d t h e in c om e ,

S h ee t giv e s s om e of t h e d e tail s Of t h e j ourn e y its elf .

4 8 TH E F ND AM ENTAL S U OF A CCOUNTING

QUES TIONS A ND P ROB LEM S

1 S h oul d you exp ec t t o recor d day b y d ay all info rmation concerning
e ach o f t h e follo wing? S tate why you ans we r as you d o in each case
.

(a) Cas h
.

(b) D epre ciation

(c) A ccounts Payab le
(d) In teres t
(e) A ccoun ts Re ceivable
(f) In sur an ce P rep ai d
(g) No t e s Re ce i a le vb
Th e f ll w
o o in g is t h e alan ce b s h ee t o f A B CO on January 1
,
.
, 1 91 9
Re al E s t at e Prop rie t A or

C as h Proprie t o B r

M e rc an iseh d Accoun t s Payable

Ac co u n t s Re ce i a le vb No t es Pay ble a

In sur an ce rep ai P d 5 00 Wages Liability 5 00

In co me s h ee t on Jan uary 3 1 , 1 91 9, was as f ll w

o o s

m h di
P ro fi t o n e rc an se
R d e n t e arn e

I f d ’

n t e e s t e arn e

G i m ross n co e

L f mb dd b o ss ro a e ts 2 00

N i m et n co e

D w b p p i ra n h) y ro r e t o rs eac

B l v d w a an ce o er$ ra n 2 00

If t h h e re b a d ti Of
as ee n i A t Payabl re d f uc on n cco un s e , an o

i b th M n h di d A
o t R ivab l b t th
er c hav
an se an cco un s e ce e, u er e e

b th
ee n n o o h g t h bal
er c h t x pt t h ff t d b y
an es o n e an ce S ee e ce o se e ec e

th p fit
e rod it withd awal (
an b th i h) i t h f ll wi g b la
s r o n cas s e o o n a nce

h t f F b a y 9 9 i t t with t h bal h t d th
,

s ee or e ru r 1 1 1 co ns s e n e an ce s ee an e

m h t ab v ? If xplai ll ha g i t h d bala
, ,

i
n co e s ee o e so , e n a c n es n e s e co n n ce

s h t mpa d with th fi t d if it i t i t t h w why it

ee as co re e rs , an s no co n s s en S o

is no t .

Re al E s t at e Pr prie t or A
o

C as h P op rie t o B
r r

h d
M e rc an i se Ac o un ts Payable
c

A c co un ts Re ce i a le vb N o t e s P y ble a a

Ins uran ce re p ai P d Wage s Liabilit y

Fro m th f ll wi g i f m ti giv b y t h l dg
e o o n fa n or a on en e e e r as o t
cer ai n date
t tab l
co n s r u c h t f th t dat d i m h
a an ce s ee or a e an an n co e s eet for th e
pr e ce di g p i d p p i t
n er o l : t t ro r e or r ea es a e n o t es pay
 TH E IN COM E S H EET 49
ab le accounts payable r en t earn e d$ 1 5 00, accounts
v bl in t eres t earne d m ha di
,

r e ce i a e $ 5 00 er c n se p ro fi t
m ha di h withd aw l f p fi t b y th
,

on er c n se ca s r a s o ro s e

p p i t
ro d i g th p
r e or ur n e r e cedi ng pe rio d p fi t hav b a d
,
as ro s e ee n e rn e ,

Th bale h t fab an ce s ee o us in ess o n Janu r 1 1 1

ay 9 9 w f ll w
, , as as o o s

Ofli Eq i pm ce u en t Proprie t or
A R iv bl
ccoun t s e ce a e Wage s Liability 5 00
C 3 5 1]

On January 1 ,
1 9 0,
2 th e b a
al n ce s hee t was
Offi ce E qim
u p en t Proprie t or
Account s Receivable
C 3 3 1! 5 7 000

Fro m th e h t d f m th i f mati giv b l w

t w o b al an ce s ee s an ro e n or on en e o

t
co ns ru c t t h i m h t f th y a 9 9 C mmi i
e n co e s ee d or e e r 1 1 o ss o n earn e

f m v f m bad d b t w
.

w as ga i i wn ro l se r ces as o sses ro e s er e

S h ld y
ou d f g i da i d ti g a m f t g b i
ou n e e or u n ce n co n uc n an u ac un n u s n e ss

an y g al i f m t i ab t it Op ati
e ne r n or a xp ibl i d ll
on ou s er on s , e r es s e n o ar s

an d t t gi v
ce n s , n o t h bala h t th i m h t? If
en o n e n ce s ee or e nco e s ee so ,

what ? D O y y w y O f g tti g it b y b
o u se e an kk pi g m th d ? If
a e n oo ee n e o s

so, t ll b i fly b y wh t m th d
e r e a e o s.