At the beginning of the summer, Ted Coe was looking for a way to earn money to pay for his college tuition in the fall. He decided to start a lawn service business in his neighborhood. To get the business started, Ted used $3,000 from his savings account to open a checking account for his new business, Elegant Lawn Care. He purchased two used power mowers and various lawn care tools for $1,000, and paid $1,800 for a second-hand truck to transport the mowers.
Several of his neighbors hired him to cut their grass on a weekly basis. He sent these customers monthly bills. By the end of the summer, they had paid him $600 in cash and owed him another $1,150. Ted also cut grass on an as-needed basis for other neighbors who paid him $500.
During the summer, Ted spent $200 for gasoline for the truck and mowers. He paid $500 to a friend who helped him on several occasions. An advertisement in the local paper cost $100. Now, at the end of the summer, Ted is concerned because he has only $500 left in his checking account. He says, “I worked hard all summer and have only $500 to show for it. It would have been better to leave the money in the bank.”
Prepare an income statement, a statement of owner’s equity, and a balance sheet for Elegant Lawn Care. Explain to Ted whether or not he is “better off” than he was at the beginning of the summer. (Hint: T accounts might be helpful in organizing the data.)
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