Exercise 3-10A Recording supplies and identifying their effect on financial statements
Sye Chase started and operated a small family architectural firm in 2016. The firm was affected by two events:
(1) Chase provided $25,000 of services on account, and
(2) he purchased $2,800 of supplies on account. There were $250 of supplies on hand as of December 31, 2016.
Required
a. Open T-accounts and record the two transactions in the accounts.
b. Record the required year-end adjusting entry to reflect the use of supplies.
c. Record the preceding transactions in a horizontal statements model like the following one:
Assets 5 Liab. 1 Equity Rev. 2 Exp. 5 Net Inc. Cash Flow
Accts. Accts. Ret.
Rec. 1 Supplies 5 Pay. 1 Earn.
d. Explain why the amounts of net income and net cash flow from operating activities differ.
e. Record and post the required closing entries, and prepare a post-closing trial balance.