Question

this subject is supposed to be Accounting for Entrepreneurship

* please explain your answer and right the formula , orgonize it but not too sophisticated .

(7) George's Pizzeria has the following information as of December 31, 2012: cash, $2,000; pizza ovens, $25,000; furniture, $12,500; accounts payable, $3,500; notes payable, $12,500; accumulated depreciation, $10,000; wages payable, $1,500; taxes payable, $2,500; and equipment loan, $18,000. Construct a balance sheet for George. Do you think he has a problem with his current balance sheet? If so, what is it?

Answer 1

Below is the Balance Sheet of George's Pizzeria, based on the given information:

Balance Sheet of George's Pizzeria
Assets	Debit	Liabilities	Credit
Cash	2,000	Accounts Payable	3,500
Pizza Ovens	25,000	Notes Payable	12,500
Furniture	12,500	Wages Payable	1,500
Accumulated Depreciation	-10,000	Taxes Payable	2,500
		Equipment Loan	18,000
	29,500		38,000
Difference	8,500

Above balance sheet clearly shows that there exists problem in this balance sheet. Below are the list:

1) Balance sheet has not reconciled (i.e.) Total of Assets not equal to total of Liabilities; thus it is clear that few items are missing.

2) No data available regards to Accounts Receivable; though lets assume that all sales are on cash basis, there is no enough cash available to meet with current liabilities. Thus it is clear that either all sales are not accounted or all cash receipts are not accounted.

3) Inventory data not available. Any business should maintain minimum level of inventory in order to meet with day to day production or sales requirements.

4) Accumulated Depreciation doesn't provide break up between Oven and Furniture.

5) Equipment loan is available, whereas details of equipment not available under asset category.

6) Capital or owner's stock details not available - initial capital based on which any business gets commenced.

7) Retained earnings or profit or loss from income statement not available, in order to know whether business is generating profit or loss and in order to know use and source of assets and liabilities.