Question

Puntarelli Contracting keeps its accounting records on a cash basis during the year. At year-end, it adjusts its books to the accrual basis for preparing its financial statements. At the end of 2015, Puntarelli reported the following balance sheet items:

	Debit	Credit
Cash	$ 2,700
Accounts receivable	4,200
Inventory	5,600
Equipment	12,000
Accumulated depreciation		$ 4,800
Accounts payable		6,100
T. Puntarelli, capital		13,600
Totals	$24,500	$24,500

It is now the end of 2016. The company's checkbook shows a balance of $4,700, which includes cash receipts from customers of $51,300 and cash payments of $49,300.

An examination of the cash payments show that: (1) $30,600 was paid to suppliers, (2) $12,700 was paid for other operating costs (including $7,200 paid on January 1 for two years' annual rent), and (3) $6,000 was withdrawn by T. Puntarelli.

On December 31, 2016, (1) customers owed Puntarelli Company $5,900, (2) Puntarelli Company owed suppliers and employees $7,000 and $900, respectively, and (3) the ending inventory was $6,300. Puntarelli is depreciating the equipment using straight-line depreciation over a 10-year life (no residual value).

Required

1-Using accrual-based accounting, prepare a 2016 income statement.

Puntarelli Contracting
Income Statement
For Year Ended December 31, 2016
Sales revenue		$
Cost of goods sold
Gross profit		$
Operating expenses
Depreciation expense	$
Other operating expenses
Total expenses
Net income		$

2-

Using accrual-based accounting, prepare a December 31, 2016 balance sheet.

Puntarelli Contracting Balance Sheet December 31, 2016
Assets
Current Assets:
Cash	$
Accounts receivable
Inventory
Prepaid rent
Total current assets		$
Property, Plant, and Equipment:
Equipment	$
Less: Accumulated depreciation
Total property, plant, and equipment
Total assets
Liabilities
Current Liabilities:
Accounts payable	$
Salaries payable
Total liabilities		$
Owner's Equity
T. Puntarelli, capital
Total liabilities and owners' equity		$

Answer 1

Income statement is an statement that reflects the income and expenses of the business and concluded to calculate net income from the business.

balance sheet reflects the position of assets and liabilities of the business as on the year end date.