Accounting Reports
   

The Balance Sheet for Art Supplies Ltd. at the end of December is the same one you used earlier and is the balance sheet for the beginning of January. It is shown in the first column of the exhibit. The balance sheet as of the end of January is in the second column. The income statement for January is given below the balance sheets.

Note that the change in Retained Earnings during January is €600 (€600-€0). As shown at the bottom of the example, this change is the net effect of two items:

·The net income for the period, €1,100, as reported on the income statement.  
·A dividend paid during the period, €500.  

Note also that although net income in January is €1,100, Cash decreases by €2,700 (€4,000-€1,300). This decrease emphasizes that there is not necessarily a connection between the income of a period and the change in cash during the period.

In examining the activities of an accounting period, you will find it useful to consider changes in assets and equities in the beginning and ending balance sheets, and the revenues and expenses of the period, as shown on the income statement.
 
Balance Sheet  
 
Assets
As of 31/12
As of 31/01
Cash  
4,000
1,300
Debtors  

1,600
Equipment  
2,000
3,400
Furniture  
5,000
5,000
Prepaid Expenses  

1,100

=====
=====
Total Assets  
11,000
12,400



Liabilities & Equity


Liabilities:  


Creditors  
1,000
1,500
Accrued Salaries  

300

-------
-------
Total Liabilities  
1,000
1,800



Equity:  


Paid in Capital  
10,000
10,000
Retained Earnings  

600

--------
--------
Total Equity  
10,000
10,600

=====
=====
Total Liabilities & Equity  
11,000
12,400

=====
=====
 
 
Income Statement for January  
 
Revenues

Service Revenue  
12,000
Interest Income  
200

=====
Total Income
12,200


Expenses

Salaries  
9,800
Insurance Expense  
100
Light & Heating Expense  
400
Other Expenses  
800

=====
Total Expenses
11,100

=====
Net Income
1,100

=====
 

Explanation of Retained Earnings:
 
Retained Earnings - 31/12
0
Add income for January
1,100

====
Subtotal
1,100


Subtract withdrawal (dividends)
500

====
Retained Earnings - 31/01
600

====

 
These techniques are consistent with the general accounting principles. This section is an overview of the accounting process. Details are given in later sections.