Recording Income Statement Transactions - Spreadsheet
Practice As You Learn
Introduction to Accounting
Recording Income Statement Transactions – Spreadsheet
Practice As You Learn
The “Spreadsheet” should start out like this:
Important:
When you record revenues you must also increase an asset
When you record an expense you must also reduce an asset or increase a liability
General rules to follow when recording on the spreadsheet:
If the account name is not there, you must write it on a line at the top and put the amount only in the column below
Once the account name is there, when another transaction happens that impacts that account, write only the amount in the column
Write all amounts for each transaction on one row only
Make sure that for each row the amounts stay in balance:
Assets = Liabilities + Owner’s Equity + Revenues – Expenses
As you read the transaction ask yourself –
Did the company provide goods or services? (Revenue)
Was something provided to the company that they must pay for? (Expense)
Did the company use (up) an asset? (Expense)
Then, identify the account name that goes with what the company provided, what the company was provided that they must pay for, and what asset the company used up.
Follow this thought process.
1) Did the company provide goods or services? (Revenue)
If yes and to a customer – record sales for goods and record “_____” revenue for services
Also record what the company received in return, cash or a receivable.
2) Did the company receive a service that they must pay for
If yes – this is an expense, call it “______” expense
If the expense was paid, reduce cash
If the expense was not paid for yet, increase a “_____” payable
3) Did the company use an asset in day to day business?
If yes – this is an expense, call it “______” expense or cost of goods sold.
Also reduce the asset that was used up, except use “accumulated depreciation” when using a long-term asset
Revenues are positive accounts
Expenses are negative accounts
When you record revenues you must also increase an asset
When you record an expense you must also reduce an asset or increase a liability
Practice Problem 1 –
Record Income Statement and Balance Sheet Transactions on a Spreadsheet
A company had the following transactions for the first month of operations:
1) Received $150,000 cash from investors for ownership in the company.
2) Purchased inventory to be sold to customers, $45,000 on account.
3) Sold $15,000 of inventory on account (you will be paid later), sales price of $27,500.
4) Purchased office furniture for $6,000 cash
5) Rented warehouse space, $5,000 was paid for this month and $10,000 was paid for the following 2 months.
6) Paid $4,000 for salaries to employees who worked this month.
7) Purchased equipment costing $30,000 by paying $18,000 cash down and agreeing to pay the balance in 2 years.
8) Paid $700 for advertising run this month.
9) Received and paid a $100 utility bill for this month.
10) Collected $7,500 owed from customers in 3) above.
A. Record the above transactions on a spreadsheet
B. Total each column and make sure the spreadsheet balances
C. Prepare a balance sheet and income statement for the company
Check Your Answer
Answer to Practice Problem 1 –
For each transaction, determine what is exchanged:
1) Received $150,000 cash from investors for ownership in the company.
Get: cash
Give up: Ownership – common stock
2) Purchased inventory to be sold to customers, $45,000 on account.
Get: inventory
Give up: Liability – accounts payable
3) Sold $15,000 of inventory on account (you will be paid later), sales price of $27,500.
Incur: used an asset – cost of goods sold
Give up: inventory when you provided it to the customer
Earned: provided to customer – sales
Get: accounts receivable, they will pay later
When you sell goods to customers you always record 4 things:
You used the asset inventory to provide the goods which is an expense and inventory went down also
You provided goods which is a sales revenue and they will pay you later, which is accounts receivable (use cash if they pay now)
4) Purchased office furniture for $6,000 cash
Get: office furniture
Give up: cash
5) Rented warehouse space, $5,000 was paid for this month and $10,000 was paid for the following 2 months.
Give up: cash of $15,000
Get: a service was provided this month to the company they must pay for, rent expense
Get: a service the will be provided in future months. This is a future benefit called prepaid rent
6) Paid $4,000 for salaries to employees who worked this month.
Get: a service was provided this month – salary expense
Give up: cash
7) Purchased equipment costing $30,000 by paying $18,000 cash down and agreeing to pay the balance in 2 years.
Get: equipment $30,000
Give up: cash $18,000 and a liability of the difference $12,000 called notes payable
8) Paid $700 for advertising run this month.
Get: a service was provided this month – advertising expense
Give up: cash
9) Received and paid a $100 utility bill for this month.
Get: a service was provided this month – utilities expense
Give up: cash
10) Collected $7,500 owed from customers in 3) above.
Get: cash
Give up: accounts receivable – the customer does not owe you anymore
Write the account names on the spreadsheet (each account name once). Put the amounts in the columns underneath the accounts. Write the amounts for each transaction on the same row.
C. Prepare a balance sheet and an income statement:
Do the income statement first – you need to add profit or loss to prior retained earnings to get the amount that is put on the balance sheet for retained earnings at the end of the period.
List the revenue and expense accounts and the total amount in the proper format.
Do a multi-step income statement since there is cost of goods sold.
Sales 27,500
– Cost of Goods Sold (15,000)
= Gross Profit 12,500
– Operating Expenses:
Rent Expense (5,000)
Salaries Expense (4,000)
Advertising Expense ( 700)
Utilities Expense ( 100)
= Income 2,700
List the asset, liability and owner’s equity accounts and the total amounts in the proper format.
End of year Retained Earnings = Beginning + Net Income – Dividends
Practice Problem 2 –
Record Income Statement and Balance Sheet Transactions on a Spreadsheet
A company had the following transactions for the first year of operations:
1) Borrowed $100,000 from the bank to be repaid in 3 years
2) Rented office space for this month and paid $2,000
3) Received a bill for utilities for this month for $800
4) Employees worked this month and will be paid $4,900
5) Provided services to customers for the amount of $19,000, the customers will pay in 30 days.
6) Purchased office furniture for $6,900 cash
7) Purchased computer equipment for $1,350 on account
8) Collected $18,100 from customers
9) Paid for the computer equipment purchased above
10) Collected rent from a company leasing extra office space, $650.
11) Collected interest from the bank on excess cash in your account $206
12) Paid interest on the notes payable, $345
A. Record the above transactions on a spreadsheet
B. Total each column and make sure the spreadsheet balances
C. Prepare a balance sheet and income statement for the company
Check Your Answer
Answer to Practice Problem 2 –
1) Borrowed $100,000 from the bank to be repaid in 3 years
Get: cash
Give up: liability – L/T notes payable
2) Rented office space for this month and paid $2,000
Get: a service was provided – rent expense
Give up: cash
3) Received a bill for utilities for this month for $800
Get: a service was provided – utilities expense
Give up: a liability – accounts payable – no cash was paid yet
4) Employees worked this month and will be paid $4,900
Get: a service was provided – salaries expense
Give up: a liability – salaries payable – no cash was paid yet
5) Provided services to customers for the amount of $19,000, the customers will pay in 30 days.
Get: customer will pay later – accounts receivable
Give up: Earned: Providing a service – Service revenues
6) Purchased office furniture for $6,900 cash
Get: office furniture
Give up: cash
7) Purchased computer equipment for $1,350 on account
Get: computer equipment
Give up: liability – accounts payable
8) Collected $18,100 from customers
Get: cash
Give up: accounts receivable – they don’t owe you anymore
9) Paid for the computer equipment purchased above
Get: owe less – reduce accounts payable
Give up: cash
10) Collected rent from a company leasing extra office space, $650.
Get: cash
Give up: Earned: provided the service of letting someone use the space, rent revenue
11) Collected interest from the bank on excess cash in your account $206
Get: cash
Give up: Earned: provided a service of letting someone use your money, interest revenue
12) Paid interest on the notes payable, $345
Get: was provided a service of using money – interest expense
Give up: cash
Record the transactions on the spreadsheet:
C. Prepare a balance sheet and an income statement:
Do the income statement first – you need to add income to prior retained earnings and subtract dividends paid to get the amount that is put on the balance sheet for retained earnings at the end of the period.
List the revenue and expense accounts and the total amount in the proper format.
Do a single step income statement since there is no cost of goods sold.
Revenues:
Service Revenue 19,000
Rent Revenue 650
Interest Revenue 206
– Expenses:
Rent Expense (2,000)
Salaries Expense (4,900)
Utilities Expense ( 800)
Interest Expense ( 345)
= Income 11,811
List the asset, liability and owner’s equity accounts and the total amounts in the proper format.
Retained earnings = beginning retained earnings + Income – Dividends Paid
Important to Notice:
The total amount at the bottom of the account is the amount that is reported on the financial statements.
Accounts with 0 balance are not listed on the income statement or the balance sheet:
Retained earnings is always the beginning retained earnings + net income
or less losses – dividends paid.
In these practice problems this is the first year of operations so beginning retained earnings is 0. If it is not the first year, you will have a beginning retained earnings.
If it is not the first year of operations, you will have to start each account on the balance sheet with the given beginning balance.
Income statement accounts do not have a beginning balance because you are recording for this period only. At the end of every period you move the revenue and expense balance to retained earnings and revenues and expenses begin at 0.
When you record revenue – you also record an asset increase
When you record an expense – you also record a liability increase or an asset decrease
Revenues are always positive
Expenses are always negative