Comparing a merchandising company with a service company
The following information is available for two different types of businesses for the 2011 accounting period. Dixon Consulting is a service business that provides consulting services to small businesses. Books For Less is a merchandising business that sells books to college students.
Data for Dixon Consulting
1. Borrowed $40,000 from the bank to start the business.
2. Performed services for customers and collected $30,000 cash.
3. Paid salary expense of $19,200.
Data for Books For Less
1. Borrowed $40,000 from the bank to start the business.
2. Purchased $19,000 of inventory for cash.
3. Inventory costing $16,800 was sold for $30,000 cash.
4. Paid $2,400 cash for operating expenses.
Required
a. Prepare an income statement, balance sheet, and statement of cash flows for each of the companies.
b. What is different about the income statements of the two businesses?
c. What is different about the balance sheets of the two businesses?
d. How are the statements of cash flow different for the two businesses?
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