Accounting 101

Financial Accounting

Unit 1 Business and the Role of Accounting

A.) D.C. Dawg starts his own business and contributes $6000.00

This shows in the statement of cash flows and it shows in the owner’s equity in looking at total assets D.C. has a ratio of 3:1 dollars invested over his liabilities. For every dollar borrowed he has put up three of his own dollars. As a lender I would see this as a positive.

B.) The Cats and Dogs Company borrowed $2000.00 from the bank on March 1. This is a 1-year, 12% note, with both principal and interest to be repaid on February 28 of the next year.

This shows in the balance sheet under liabilities. I think it’s a positive that this is first a small loan, and second that The Cats and Dogs Company has made $900.00 in revenue in its first month. I don’t see why this loan can’t be paid off on time, if not before it’s due.

C.) The company earned $900.00 in revenue.

This shows in accounts receivable and is an asset. Revenue is good, but a more aggressive business plan should be created in order to recoup the owner’s initial investment and the payback of the loan.

D.) Expenses amounted to $650.00.

This would show in liabilities under expenses, but as it was non-specific I can’t be more informative. If I was there accountant I would ask for specific information in order to determine what was tax deductible, necessary, and to make sure we were getting the most bang for our buck!

E.) Distributions to owner were $25.00.

This would show in the balance sheet as a liability.

The additional piece of information I provided was the 3:1 ratio of money flowed into the company. I think it’s a good statement that D.C. invested $3 to every $1 he borrowed. To me it shows a good faith effort to start his own business and own his debts.

CATS AND DOGS COMPANY

MARCH 2006 FINANCIAL STATEMENT

Accountant