Question

Sye Chase started and operated a small family architectural firm in Year 1. The firm was affected by two events: (1) Chase provided $21,700 of services on account, and (2) he purchased $5,300 of supplies on account. There were $1,150 of supplies on hand as of December 31, Year 1.

Required
a. b. & e. Record the two transactions in the accounts. Record the required year-end adjusting entry to reflect the use of supplies and the required closing entries. Post the entries in the T-accounts and prepare a post-closing trial balance.

c. Show the above transactions in a horizontal statements model.

d. Explain why the amounts of net income and net cash flow from operating activities differ.

Answer 1

a)	Journal Entries
	Particulars	Debit	Credit
	Debtors Account -Dr	$ 21,700.00
	To Services Revenue		$ 21,700.00
	(Being services provided by Chase on account)
	Supplies Account -Dr	$   5,300.00
	To Creditors		$   5,300.00
	( being supplies purchased on Account)
	Supplies expense Account -Dr	$   4,150.00
	To Supplies		$   4,150.00
	(being Supplies used for providing services accounted)

T - accounts
Debtors account
Particulars	Amount	Particulars	Amount
To Services Revenue	$ 21,700.00	By Bal c/d	21700
	$ 21,700.00		$ 21,700.00
Services Revenue account
Particulars	Amount	Particulars	Amount
To Bal c/d	$ 21,700.00	By Debtors	21700
	$ 21,700.00		$ 21,700.00
Supplies Account
Particulars	Amount	Particulars	Amount
To Creditors Account	$   5,300.00	By Supplies Expense Account	4150
		By Bal c/d	$   1,150.00
	$   5,300.00		$   5,300.00
Supplies Expense Account
Particulars	Amount	Particulars	Amount
To Supplies account	$   4,150.00	By profit and loss account	4150
	$   4,150.00		$   4,150.00

	Trial Balance
Particulars	Debit	Credit
Debtors	$ 21,700.00
Creditors		$    5,300.00
Supplies	$    1,150.00
Supplies expense	$    4,150.00
Services revenue		$ 21,700.00
	$ 27,000.00	$ 27,000.00

b)	Horizotal Statement model
Events	Assets				=	Liabilities + Equity			Income statement					Statement of Cash Flows
	Debtors	+	Supplies	+	=	Revenue	+	Creditors	Revenue	-	Expenses	=	Net Income
1	$ 21,700.00					$ 21,700.00			$ 21,700.00		$              -		$ 21,700.00	Debtors increased
2			$ 5,300.00					$ 5,300.00						Creditors Increased
3									$               -		$(4,150.00)		$ 17,550.00	No change
	$ 21,700.00		$ 5,300.00			$ 21,700.00		$ 5,300.00	$ 21,700.00		$(4,150.00)

c) The main reason of difference in Balances of Net income and Net cash flow is because , when any income is generated It forms part of Net Income but It is accounted as cash flow only when Cash is realised and other operating activities on the same basis i.e. only when cash is recieved .

This is the main reason for difference in amounts of net income and net Cash flow from operating activities