Preparing financial statements and evaluating business performance
The bookkeeper of Outdoor Life Landscaping prepared the company”s balance sheet while the accountant was ill. The balance sheet contains numerous errors. In particular, the bookkeeper knew that the balance sheet should balance, so he plugged in the owner”s equity amount needed to achieve this balance. The owner”s equity is incorrect. All other amounts are right, but some are out of place.
| OUTDOOR LIFE LANDSCAPING Balance Sheet Month Ended July 31, 2012 | |||
| Assets | Liabilities | ||
| Cash | 5,000 | Accounts receivable | 2,300 |
| Office supplies | 800 | Kamp, drawing | 8,000 |
| Land | 28,400 | Service revenue | 39,200 |
| Salary expense | 3,500 | Property tax expense | 2,000 |
| Office furniture | 5,200 | Accounts payable | 2,800 |
| Note payable | 26,400 | Owner”s Equity | |
| Rent expense | 700 | Kamp, capital | 15,700 |
| Total assets | $70,000 | Total liabilities | $70,000 |
Requirements
1. Prepare a corrected balance sheet.
2. Consider the original balance sheet as presented and the corrected balance sheet you prepared for requirement 1. Did total assets as presented in your corrected balance sheet increase, decrease, or stay the same from the original balance sheet? Why?
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