MNU

Principles of Accounting

Chapter-01: Introducing Accounting in Business

1.1: Introduction:
Accounting! Why did people choose accounting? They wanted to understand what was
happening financially to their organizations. Accounting is the financial information system that
provides these insights. In short, to understand organization, one has to know the numbers. In
business, accounting and financial statements are the means for communicating the numbers. If
one doesn‘t know how to read financial statements, one can‘t really know his/her business. The
importance of having good financial information helps to knowing how to use it to make
effective business decisions. Whatever one‘s pursuits or occupation, the need for financial
information is inescapable. One cannot earn a living, spend money, buy on credit, make an
investment, or pay taxes without receiving, using, or dispensing financial information. Good
decision-making depends on good information.

1.2: Accounting:
Accounting is an information system that identifies, records, and communicates the economic
events of an organization to interested users. Example: the activities of an accountant; banking
documentation, the activities of company account etc.

1.3: Three activities in accounting:

Three activities in accounting are given below:
a) Identify: As a starting point to the accounting process, a company identifies the
economic events relevant to its business. Examples of economic events are the sale of
snack chips by PepsiCo, the provision of cell phone services by Xaomi, and the
payment of wages by Facebook.
b) Records: Once a company like PepsiCo identifies economic events, it records those
events in order to provide a history of its financial activities. Recording consists of
keeping a systematic, chronological diary of events, measured in dollars and cents. In
recording, PepsiCo also classifies and summarizes economic events.
c) Communicates: Finally, PepsiCo communicates the collected information to
interested users by means of accounting reports. The most common of these reports
are called financial statements. To make the reported financial information
meaningful, PepsiCo reports the recorded data in a standardized way. It accumulates
information resulting from similar transactions.

1.4: Users of accounting data:

The financial information that users need depends upon the kinds of decisions they make. There
are two broad groups of users of financial information: internal users and external users.

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a) Internal users: Internal users of accounting information are managers who plan,
organize and run a business. Example: marketing manager; finance director, company
officer etc.
b) External users: External users are individuals and organizations outside a company
who want financial information about the company. Example: investors, creditors,
customs taxing authorities, regulatory agencies, labor union, economic planners,
customers etc.

1.5: Financial Accounting:

An area of accounting that deals with external reporting to parties outside the firm, usually based
on standardized rules and regulation.

1.6: Accounting Information System:

An accounting information system (AIS) is system that collects and process transaction data and
disseminates financial information to interested parties. It is based on cost awareness, useful
output.

1.7: Basic Accounting Principles:

Accounting principles are essential rules and concepts that govern the field of accounting, and
guides the accounting process should record, analyze, verify and report the financial position of
the business. Accounting principles are the foundation of accounting according to GAAP. These
principles are used in every step of the accounting process for the proper representation of the
financial position of the business. These are explained below:
a) Revenue Recognition Principle: Revenue Recognition Principle is mainly concerned
with the revenue being recognized in the income statement of an enterprise. Revenue
should be recognized when realized or realizable and when earned. Revenue is the gross
inflow of cash, receivables or other considerations arising in the course of ordinary
activities of an enterprise from the sale of goods, rendering of services and use of
enterprise resources by others yielding interests, royalties, and dividends. It excludes the
amount collected on behalf of third parties such as certain taxes. In an agency
relationship, the revenue is the amount of commission and not the gross inflow of cash,
receivables or other considerations.
b) Historical Cost Principle: According to Historical Cost principle, an asset is ordinarily
recorded in the accounting records at the price paid to acquire it at the time of its
acquisition and the cost becomes the basis for the accounts during the period of
acquisition and subsequent accounting periods. Accordingly, if nothing is paid to acquire
an asset; the same will not be usually recorded as an asset, e.g. a favorable location, and
increasing reputation of the concern will remain unrecorded though these are valuable
assets. The justification for the use of the cost concept lies in the fact that it is objectively
verifiable.

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c) Matching Principle: According to Matching Principle, the expenses incurred in an
accounting period should be matched with the revenues recognized in that period, e.g., if
revenue is recognized on all goods sold during a period, the cost of those goods sold
should also be charged to that period. It is wrong to recognize revenue on all sales, but
charge expenses only on such sales as are collected in cash till that period. This concept
is basically an accrual concept since it disregards the timing and the amount of actual
cash inflow or cash outflow and concentrates on the occurrence (i.e. accrual) of revenue
and expenses. This concept calls for an adjustment to be made in respect of prepaid
expenses, outstanding expenses, accrued revenue, and un-accrued revenues. Matching
does not mean that expenses must be identifiable with revenues. Expenses charged to a
period may or may not be related to the revenue recognized in that period, e.g. cost of
goods sold and commission to salesmen are directly related to sales whereas rent,
interest, depreciation accruing with the passage of time and stock lost by fire are not
directly related to sales revenue yet, they are charged to the accounting period to which
they relate.
d) Full Disclosure Principle: According to this principle, the financial statements should
act as a means of conveying and not concealing. The financial statements must disclose
all the relevant and reliable information which they purport to represent so that the
information may be useful for the users. For this, it is necessary that the information is
accounted for and presented in accordance with its substance and economic reality and
not merely with its legal form. The practice of appending notes to the financial statements
has developed as a result of the principle of full disclosure.
e) Objectivity Principle: According to the Objectivity Principle, the accounting data
should be definite, verifiable and free from the personal bias of the accountant. In other
words, the Objectivity Principle requires that each recorded transaction/event in the
books of accounts should have adequate evidence to support it. In historical cost
accounting, the accounting data are verifiable since the transactions are recorded on the
basis of source documents such as vouchers, receipts, cash memos, invoices, etc. At the
same time, the accounting data is ‗bias-free‘ since the accounting data are not subject to
the bias of either management or of the accountant who prepares the accounts. On the
other hand, in value-based accounting (e.g. current cost accounting) accounting data is
not bias-free because the value may mean different things for different persons.

1.8: Assumptions of Accounting:

a) Accounting Entity or Economic Entity Assumption: A company is considered a
separate ―living‖ enterprise, apart from its owners.
 It has a name
 It has a birthdate and birthplace (referred to as incorporation date and place,
respectively).
 It is engaged in clearly defined activities.

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 It regularly reports its financial health (through financial reports) to the
general public.
 It pays taxes.
 It can file lawsuits.
The accounting entity assumption enables users of financial reports to tell whose
financials they are reviewing and therefore places those financials into context. The
assumption of a company as a separate economic entity promotes ownership in the
business, since its current and future owners know that their financial liability is limited
to the value of their investment while they are legally shielded from any potential
lawsuits brought against the company.
b) Going Concern: A company is considered viable and a ―going concern‖ for the
foreseeable future. In other words, a corporation is assumed to remain in existence for an
indefinitely long time. Exxon Mobil, for example, has existed since 1882, and General
Electric has been around since 1892; both of these companies are expected to continue to
operate in the future. To assume that an entity will continue to remain in business is
fundamental to accounting for publicly held companies. The going concern assumption
essentially says that a company expects to continue operating indefinitely; that is, it
expects to realize its assets at the recorded amounts and to extinguish its liabilities in the
normal course of business.
c) Measurement and Units of Measure: Financial statements have limitations; they show
only measurable activities of a corporation such as its quantifiable resources, its liabilities
(money owed by it), amount of taxes facing it, and so forth. For example, financial
statements exclude:
Internally developed trademarks and patents (think of Coke, Microsoft, General
Electric)—the value of these brands cannot be quantified or recorded. Employee and
customer loyalty—their value is undeterminable. Since financial statements show only
measurable activities of a company, they must be reported in the national monetary unit.
European financial statements now use the euro as a standard monetary unit.
d) Periodicity: A continuous life of an entity can be divided into measured periods of time,
for which financial statements are prepared. Companies are required to file quarterly and
annual financial reports. Typically one calendar year represents one accounting year
(usually referred to as a fiscal year) for a company. Be aware that while many
corporations align their fiscal years with calendar years, others do not.

1.9: Constraints of Accounting:

Constraints of accounting are the limitations or boundaries that are necessary for providing
information with qualitative characteristics. Constraints of accounting are given below:
a) Cost-Benefit Principle: According to this principle, the cost of applying an accounting
principle should not be more than its benefits. If the cost is more, this principle should be
modified. Too often, users assume that information is free. However, providers of
accounting information know that it is not. Therefore, companies must consider the cost-

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benefit relationship. They must consider the costs of providing information against the
benefits that can be derived from using it. Rule-making bodies and governmental
agencies use cost-benefit analysis before making final their informational requirements.
To justify requiring a particular measurement or disclosure, the benefits perceived to be
derived from it must exceed the costs perceived to be associated with it. The difficulty in
cost-benefit analysis is that the costs and especially the benefits are not always evident or
measurable. The costs are of several kinds: costs of collecting and processing, of
disseminating, or auditing, of potential litigation, of disclosure to competitors, and
analysis and interpretation. Benefits to preparers may include greater management
control and access to capital at a lower cost. Users may receive better information for the
allocation of resources, tax assessment, and rate regulation. Benefits are generally more
difficult to quantify than are costs.
b) Materiality Principle: This principle is an exception to the full disclosure principle. The
full disclosure principle requires that all facts necessary to ensure that the financial
statements are not misleading, must be disclosed, whereas the materiality principle
requires that the items or events having an insignificant economic effect not being
relevant to the user‘s need not be disclosed. According to the materiality principle, all
relatively relevant items, the knowledge of which might influence the decision of the
users of the financial statements, should be disclosed in the financial statements. Which
information is more relevant than others is largely a matter of judgment. For instance,
recording and accounting of a small calculator as an asset in the balance sheet may not be
justified due to the excess of the cost of recording over the benefits in terms of the
usefulness of recording and the accounting of calculators as an asset. The materiality
depends not only upon the amount of item but also upon the size of business, level and
nature of information, level of the person/department who makes the judgment about
materiality, e.g. a worker reporting to his foreman about the production in grams (e.g.
part of kilogram), a foreman to his supervisor in kilograms, a supervisor to his production
manager in quintals and the production manager to the top management intones, may be
justified with regard to the circumstances. It hardly makes any difference if the
production manager reports to the top management that the production is 1,99,000.90
kilograms or simply 200 tones (nearly).
c) Consistency Principle: According to this principle, whatever accounting practices
(whether logical or not) are selected for a given category of transactions, they should be
followed on a horizontal, basis from one accounting period to another to achieve
compatibility, e.g., if the inventory is valued on (LIFO) basis, this basis should be
followed year after year and if a particular asset is depreciated according to (WDV)
method, this method should be followed year after year. The consistency should not be
confused with mere uniformity or inflexibility and should not be allowed to become an
impediment to the introduction of improved accounting standards. It is not appropriate
for an enterprise, to leave its accounting policies unchanged when more relevant and
reliable alternatives exist. The users should be informed of the accounting policies

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employed in the preparation of the financial statements, any change in these policies and
the effects of such changes.
d) Conservatism Principle: According to this principle, the principle of ‗anticipate no
profit but provide for all probable losses‘ should be applied. The valuation of stock-in-
trade at a lower cost or net realizable value and making the provisions for bad and
doubtful debts are the applications of this principle. In other words, the principle of
conservatism requires that in the situation of uncertainty and doubt, the business
transactions should be recorded in such a manner that the profits and assets are not
overstated. When the stock is valued at a cost in one accounting period and a lower cost
or net realizable value in another accounting period; this principle conflicts with the
principle of consistency. When excessive provisions for bad and doubtful debts and
depreciation are charged, it leads to the creation of secret reserves, and thus, this principle
conflicts with the principle of full disclosure. The estimation of probable losses is a
subjective judgment and thus, this principle conflicts with the principle of objectivity.
The practice of making provisions for bad and doubtful debts etc. implies lesser charges
in the following accounting periods. In other words, it reduces the current income and
raises the future income and thus it conflicts with the matching principle. Nowadays, the
conservatism principle is being replaced by the prudence principle which requires that the
conservation principle should be applied only in circumstances in which great uncertainty
and doubt exist.

e) Timeliness Principle: According to this principle, timely information (though less

reliable) should be made available to the decision-makers. If the quarterly reports are
made available on a half-yearly basis, the information contained in the quarterly report
would not be very useful to the decision-makers since the information has lost its
capacity to influence the decision during half-year, after the expiry of which the quarterly
report had been submitted.
f) Industry Practice: The peculiar characteristics of an industry may require a departure
from the accounting guidelines discussed above. For example, in the case of the
agricultural industry, it is a common practice to disclose the crops at market value rather
than at a cost price since it is costly to obtain accurate cost figures of individual crops.
Such differences from basic theory are rare, but they do exist. Whenever we find what
appears to be a violation of basic accounting theory, we must fix whether some
peculiarity of the industry explains the reasons of violation before we try to ensure the
procedures followed.

1.10: Building Blocks of Accounting: Ethics, Principles, and Assumptions:

Ethics are the standards of conduct by which actions are judged as right or wrong. Effective
financial reporting depends on sound ethical behavior. Generally accepted accounting
principles are a common set of standards used by accountants. The primary accounting standard

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setting body is the Financial Accounting Standards Board. The monetary unit assumption
requires that companies include in the accounting records only transaction data that can be
expressed in terms of money. The economic entity assumption requires that the activities of each
economic entity be kept separate from the activities of its owner(s) and other economic entities.

1.11: Accounting Equation and Its Components:

The basic accounting equation is:
Assets = Liabilities + Owner‘s Equity
Assets are resources a business owns. Liabilities are creditorship claims on total assets.
Owner’s equity is the ownership claim on total assets.
The expanded accounting equation is:
Assets = Liabilities + Owner‘s Capital – Owner‘s Drawings + Revenues – Expenses
Investments by owners (assets the owner puts into the business) are recorded in a category
called owner‘s capital. Owner’s drawings are the withdrawal of assets by the owner for
personal use. Revenues are the gross increase in owner‘s equity from business activities for the
purpose of earning income. Expenses are the costs of assets consumed or services used in the
process of earning revenue.

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1.12: Effects of Business Transactions on the Accounting Equation:

Each business transaction must have a dual effect on the accounting equation. For example, if an
individual asset increases, there must be a corresponding:
a) Decrease in another asset, or
b) Increase in a specific liability, or
c) Increase in owner‘s equity.

Illustration:

1.13: Financial Statements:

Financial statements are formal records of the financial activities and position of a business,
person, or other entity. Companies prepare four financial statements from the summarized
accounting data:

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a) An income statement presents the revenues and expenses, and resulting net income or
net loss, for a specific period of time.
b) An owner’s equity statement summarizes the changes in owner‘s equity for a specific
period of time.
c) A balance sheet reports the assets, liabilities, and owner‘s equity at a specific date.
d) A statement of cash flows summarizes information about the cash inflows (receipts) and
outflows (payments) for a specific period of time.

Illustration: Financial Statement:

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1.14: Elements of Financial Statements:

The elements of financial statements are the classes of items contained in the financial
statements. The elements of the financial statements include:
 Assets
 Liabilities
 Equity or net assets
 Investments by owners
 Distributions to owners
 Comprehensive income
 Revenues

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 Expenses
 Gains
 Losses

1.15: Career Opportunities in Accounting:

Why is accounting such a popular major and career choice? First, there are a lot of jobs. In many
cities in recent years, the demand for accountants exceeded the supply. Not only are there a lot of
jobs, but there are a wide array of opportunities. As one accounting organization observed,
―accounting is one degree with 360 degrees of opportunity.‖
Accounting is also hot because it is obvious that accounting matters. Interest in accounting has
increased, ironically, because of the attention caused by the accounting failures of companies
such as Enron and WorldCom. These widely publicized scandals revealed the important role that
accounting plays in society. Most people want to make a difference, and an accounting career
provides many opportunities to contribute to society. Finally, the Sarbanes-Oxley Act (SOX)
significantly increased the accounting and internal control requirements for corporations. This
dramatically increased demand for professionals with accounting training. Accountants are in
such demand that it is not uncommon for accounting students to have accepted a job offer a year
before graduation. As the following discussion reveals, the job options of people with accounting
degrees are virtually unlimited.
a) Public Accountant:
Public accounting can be viewed as firms of accountants that serve clients such as
businesses (retailers, manufacturers, service companies, etc.), individuals, nonprofit
organizations, and governmental organizations. Public accounting firms range in size
from sole practitioners to a few huge international firms that employ hundreds of
thousands of CPAs throughout the world. In between are local and regional firms as well
as very large national and international firms. The people employed in public accounting
are often certified public accountants or CPAs. Many accountants leave the larger public
accounting firms after several years of experience and become an employee at a business
or other organization. In their new position they are referred to as a private accountant,
corporate accountant or internal accountant.
Examples of Public Accounting Services: The services provided by public accounting
firms vary by the size and the expertise of the firm. Here are some of the public
accounting services:
 Preparation, review, and auditing of the clients' financial statements.
 Tax work including the preparation of income tax returns, estate and tax planning,
etc.
 Consulting and advice involving accounting systems, mergers and acquisitions, and
much more.
b) Private Accounting: Instead of working in public accounting, you might choose to be an
employee of a for-profit company such as Starbucks, Alphabet, or PepsiCo. In

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managerial (or private) accounting, you would be involved in activities such as cost
accounting (finding the cost of producing specific products), budgeting, accounting
information system design and support, and tax planning and preparation. You might also
be a member of your company‘s internal audit team. In response to SOX, the internal
auditors‘ job of reviewing the company‘s operations to ensure compliance with company
policies and to increase efficiency has taken on increased importance. Alternatively,
many accountants work for not-for-profit organizations such as the Red Cross or the Bill
and Melinda Gates Foundation, or for museums, libraries, or performing arts
organizations.
c) Governmental Accounting: There are another option is to pursue one of the many
accounting opportunities in governmental agencies. For example, the Internal Revenue
Service (IRS), Federal Bureau of Investigation (FBI), and the Securities and Exchange
Commission (SEC) all employ accountants. The FBI has a stated goal that at least 15% of
its new agents should be CPAs. There is also a very high demand for accounting
educators at public colleges and universities and in state and local governments.
d) Forensic Accounting: Forensic accounting uses accounting, auditing, and investigative
skills to conduct investigations into theft and fraud. It is listed among the top 20 career
paths of the future. The job of forensic accountants is to catch the perpetrators of the
estimated $600 billion per year of theft and fraud occurring at U.S. companies. This
includes tracing money-laundering and identity-theft activities as well as tax evasion.
Insurance companies hire forensic accountants to detect frauds such as arson, and law
offices employ forensic accountants to identify marital assets in divorces. Forensic
accountants often have FBI, IRS, or similar government experience.

1.16: American Institute of Certified Public Accountants:

The American Institute of Certified Public Accountants (AICPA) is the national professional
organization of Certified Public Accountants (CPAs) in the United States, with more than
418,000 members in 143 countries in business and industry, public practice, government,
education, student affiliates and international associates.[2] Founded in 1887, the organization
sets ethical standards for the profession and U.S. auditing standards for audits of private
companies, non-profit organizations, federal, state and local governments. It also develops and
grades the Uniform CPA Examination. The AICPA maintains offices in New York City;
Washington, DC; Durham, NC; and Ewing, NJ. The AICPA celebrated the 125th anniversary of
its founding in 2012. The AICPA's founding defined accountancy as a profession characterized
by educational requirements, professional standards, a code of professional ethics, and alignment
with the public interest.

1.17: Financial Accounting Standards Board:

The Financial Accounting Standards Board (FASB) is a private, non-profit organization
standard-setting body whose primary purpose is to establish and improve Generally Accepted
Accounting Principles (GAAP) within the United States in the public's interest. The Securities
and Exchange Commission (SEC) designated the FASB as the organization responsible for
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setting accounting standards for public companies in the US. The FASB replaced the American
Institute of Certified Public Accountants' (AICPA) Accounting Principles Board (APB) on July
1, 1973. FASB accounting standards are accepted as authoritative by many organizations,
including state Boards of Accountancy and the American Institute of CPAs (AICPA).

1.18: Bangladesh Securities and Exchange Commission:

The Bangladesh Securities and Exchange Commission (BSEC) was established on 8th June,
1993 as the regulator of the country‘s capital market through enactment of the Securities and
Exchange Commission Act 1993. Through an amendment of the Securities and Exchange
Commission Act, 1993, on December 10, 2012, its name has been changed as Bangladesh
Securities and Exchange Commission from previous Securities and Exchange Commission. The
Commission consists of a Chairman and four Commissioners who are appointed for fulltime by
the government. The Chairman acts as the Chief Executive of the Commission. The Commission
has overall responsibility to formulate securities legislation and to regulate the market
accordingly. The Commission is a statutory body and attached to the Ministry of Finance.

1.19: Conclusion:
Accounting is the integral process of smooth functioning. Basically accounting is – recording the
financial transactions in the books of accounts, classifying the transactions into different heads
and sub-heads, summarizing the accounting data into reports and financial statements and
interpreting the financial data to assist decision making. Accounting helps organizations to
determine their financial rights and obligations.

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EXERCISE

Exercise-01:
Ray Neal decides to open a computer programming service on September 01, 2016 which he
names Softbyte. The following transactions are occurred during this month of operation:
a) Invest $15,000 cash in the business.
b) Softbyte purchases computer equipment for $7,000 cash.
c) Softbyte purchases for $1,600 from Acme Supply Company computer paper and other
supplies expected to last several months. Acme agrees to allow Softbyte to pay this bill in
October.
d) Softbyte receives $1,200 cash from customers for programming services it has provided.
e) Softbyte receives a bill for $250 from the Daily news for advertising but postpones
payment until a later date.
f) Softbyte provides $3,500 programming services for customers. The company receives
cash of $1,500 from customers, and it bills the balance of $2,000 on account.
g) Softbyte pays the following expenses in cash for September: store rent $600, salaries of
employees $900, and utilities $200.
h) Softbyte pays its $250 Daily News bill in cash.
i) Softbyte receives $600 in cash from customers who had been billed for services in
transaction no-(f).
j) Ray Neal withdraws $1,000 in cash from the business for his personal use.

Instructions:
(i) Prepare a tabular summary of the transaction using the following accounts: Cash,
Accounts Receivables, Supplies, Equipment, Accounts Payable and Ray Neal,
Capital.
(ii) Prepare the income statement, owner's equity statement, and balance sheet as at 31st
December, 2016.

Exerccise-02:
Joan Robinson opens her own law office on July 1, 2008. During the first month of operations,
the following transactions occurred:
a) Invested $10,000 in cash in the law practice.
b) Paid $800 for July rent on office space.
c) Purchased office equipment on account $3,000.
d) Provided legal services to clients for cash $1.500.
e) Borrowed 5700 cash from a bank on a sole payable.
f) Performed legal services for client on account $2,000.
g) Paid monthly expenses: salaries $500, utilities $300, and telephone $100.

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Instructions:
(i) Prepare a tabular summary of the transactions using the following accounts: Cash,
Accounts Receivable, Equipment, Notes Payable, Accounts Payable and Joan
Robinson, Capital.
(ii) Prepare the income statement, owner's equity Statement, and balance sheet at July 31
for Joan Robinson, Attorney at Law.

Exercise-03:
A Barone's Repair Shop was started on May 1 by Nancy Barone. A summary of May
transactions is presented below.
a) Invested $10,000 cash to start the repair shop.
b) Purchased equipment for $5,000 cash.
c) Paid $400 cash for May office rent.
d) Paid $500 cash for supplies.
e) Incurred $250 of advertising costs in the Beacon News on account.
f) Received $5,100 in cash from customers for repair service.
g) Withdrew $1,000 cash for personal use.
h) Paid part-time employee salaries $2,000.
i) Paid utility bills $140.
j) Provided repair service on account to customers $750.
k) Collected cash of $120 for services billed in transaction (j).

Instructions:
(i) Prepare a tabular analysis of the transactions, using the following column headings:
Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, and Nancy
Barone, Capital. Revenue is called Service Revenue.
(ii) Compute the net income or net loss for the month of May.

Exercise-04:
On April 1, Jenny Russo established Matrix Travel Agency. The following transactions were
completed during the month.
a) Invested $10,000 cash to start the agency.
b) Paid $400 cash for April office rent.
c) Purchased office equipment for $2,500 cash.
d) Incurred $300 of advertising costs in the Chicago Tribune, on account.
e) Paid $600 cash for office supplies.
f) Earned $9,500 for services rendered: $3,000 cash is received from customers, and the
balance of $6,500 is billed to customers on account.
g) Withdrew $200 cash for personal use.

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h) Paid Chicago Tribune amount due in transaction (d).
i) Paid employees' salaries $2,200.
j) Received $4,000 in cash from customers who have previously been billed in transaction
(f).

Instructions:
(i) Prepare a tabular analysis of the transactions using the following column headings:
Cash. Accounts Receivable, Supplies Office Equipment, Accounts Payable, and
Jenny Russo, Capital.
(ii) Compute the net income or net loss for April.

Exercise-05:
Mark Miller started his own delivery service. Miller Deliveries, on June 1, 2008. The following
transactions were completed during the month of June:
a) Mark invested $10,000 cash in the business.
b) Purchased a used van for deliveries for $12,000. Mark paid $2,000 cash and signed a note
payable for the remaining balance.
c) Paid $500 for office rent for the month.
d) Performed $4,400 of services on account.
e) Withdraw $200 cash for personal use.
f) Purchased supplies for $150 on account.
g) Received a cash payment of $1,250 for services provided on transaction (d).
h) Purchase gasoline for $100 on account.
i) Received a cash payment of $1,500 for services provided.
j) Made cash payment of $500 on the note payable.
k) Paid $250 for utilities.
l) Paid for the gasoline purchased on account on transaction (h).
m) Paid $1,000 for employee salaries.

Instructions:
(i) Prepare a tabular analysis of the transactions using the following column headings:
Cash. Accounts Receivable, Delivery Van, Notes Payable, Accounts Payable, and Mr.
Miller, Capital.
(ii) Prepare an income statement for the month of June.
(iii) Prepare a balance sheet at June 30, 2008.

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