Ahmed, I tried to solve this question in rough paper and I found mistake in figure of capital stock. It should be 12000 instead of 120,000. One more thing, you should know the meaning of supplies. Supplies is not represent as sundry creditor but it represent as closing stock. Now, we are reading to show what are the balance sheet missing amount?"Hi Sir, can you help me in solving this example?
I know it is very petty but I feel, there is wrong in the example.
Some inexperienced accountant prepared balance sheet for ABC company:
cash 60000 notes payable 103000
accounts receivable 70000 accounts payable 112000
supplies 18000 salaries payable 20000
equipment 30000 total liabilities = 235000
trucks 42000 owners' equity:
building 50000 capital stock 120000
land 80000 retained earnings ???
operating expenses 100000
service revenue 70000
total assets = 350000 total owners equity = I don't know but it should be 115000
Compute retained earnings and what are operating expenses and service revenue in owners' equity?
Ahmed from Cairo
|Account Payables||112000||Account receivables||70000|
Total Outside Liabilities
|Retained Earning||???||Capital Stock||12000|
|Total Liabilities||350000||Total Assets||350000|
Now we know simple formula of accounting equation
Owner's Equity + Retained Earning = Total Assets - Total Outside Liabilities
= 350000 - 235000
Total Owner's Equity will = 1,15,000
One important second mistake is in the figures of service revenue and operating expenses
Correct figure should
Service expenses = 100,000
Operating expenses = 70,000
Now net profit will be = service revenue - operating expenses
= 1,00,000 - 70,000
Because business is of company, Retain earning will not be the part of total Owner's Equity
Net Owner's Equity = total owner's equity - retained earning
= 115000 - 30000 = 85000