anwar has asked you several questions concerning his financial affairs to date and h 551221

CP 2-5 Transactions and income statement

Anwar Askari is planning to manage and operate AA Caddy Service at Mission Valley Golf and Country Club during June through August 2012. Anwar will rent a small maintenance building from the country club for $700 per month and will offer caddy services, including cart rentals, to golfers. Anwar has had no formal training in record keeping.

Anwar keeps notes of all receipts and expenses in a shoe box. An examination of Anwar’s shoe box records for June revealed the following:

June 1. Transferred $3,500 from personal bank account to be used to operate the caddy service.

1. Paid rent expense to Mission Valley Golf and Country Club, $700.

2. Paid for golf supplies (practice balls, etc.), $800.

3. Arranged for the rental of 25 regular (pulling) golf carts and 10 gasoline driven carts for $3,000 per month. Paid $500 in advance, with the remaining $2,500 due June 20.

7. Purchased supplies, including gasoline, for the golf carts on account, $600. Mission Valley Golf and Country Club has agreed to allow Anwar to store the gasoline in one of its fuel tanks at no cost.

15. Received cash for services from June 1–15, $4,150.

17. Paid cash to creditors on account, $600.

20. Paid remaining rental on golf carts, $2,500.

22. Purchased supplies, including gasoline, on account, $400.

25. Accepted IOUs from customers on account, $1,800.

28. Paid miscellaneous expenses, $350.

30. Received cash for services from June 16–30, $6,350.

30. Paid telephone and electricity (utilities) expenses, $340.

30. Paid wages of part-time employees, $850.

30. Received cash in payment of IOUs on account, $1,200.

30. Determined the amount of supplies on hand at the end of June, $500.

Anwar has asked you several questions concerning his financial affairs to date, and he has asked you to assist with his record keeping and reporting of financial data.

a. To assist Anwar with his record keeping, prepare a chart of accounts that would be appropriate for AA Caddy Service.

b. Prepare an income statement for June in order to help Anwar assess the profitability of AA Caddy Service. For this purpose, the use of T accounts may be helpful in analyzing the effects of each June transaction.

c. Based on Anwar’s records of receipts and payments, compute the amount of cash on hand on June 30. For this purpose, a T account for cash may be useful.

d. A count of the cash on hand on June 30 totaled $8,390. Briefly discuss the possible causes of the difference between the amount of cash computed in (c) and the actual amount of cash on hand.