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During January 2020, the company had the following transactions: Example: Made payments of $4,000 on outstanding accounts payable 1. Sold $2,000 of inventory to customers for $3,000 in cash. 2. Purchased $2,500 of new inventory for cash 3. Sold $3,500 of inventory to customers on account for $5,500. 4. During the month, received $3,500 from customers as payments on their accounts 5. Borrowed $20,000 from the bank and issued stock for $5,000 to purchase land for $25,000 for a future warehouse 6. Paid employees $2,000 for payroll Required: 1. Record the January 2020 transactions by adding and subtracting amounts in the rows of the following table in a way that the row totals represent the end of the month balances in the financial statements. (fill in the shaded area as needed) 2. Explain the main characteristics of the balance sheet and the income statement and the relationship between those two statements.

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Answer:

Journal Entries:

Example:

Debit Accounts Payable $4,000

Credit Cash Account $4,000

To record the payment to suppliers.

1. Debit Cash Account $3,000

Credit Sales Revenue $3,000

To record the cash sales to customers.

Debit Cost of Goods Sold $2,000

Credit Inventory $2,000

To record the cost of goods sold.

2. Debit Inventory $2,500

Credit Cash Account $2,500

To record the purchase of inventory for cash.

3. Debit Accounts Receivable $5,500

Credit Sales Revenue $5,500

To record the sale of goods on account.

Debit Cost of Goods Sold $3,500

Credit Inventory $3,500

To record the cost of goods sold.

4. Debit Cash Account $3,500

Credit Accounts Receivable $3,500

To record the cash receipt from customers.

5. Debit Land $25,000

Credit Bank Loan Payable $20,000

Credit Common Stock $5,000

To record the purchase of land.

6. Debit Salaries and Wages $2,000

Credit Cash Account $2,000

To record the payment of payroll.

2. The main characteristics of the balance sheet and the income statement and the relationship between the two statements:

The balance sheet is a financial statement that records the outstanding balances of assets, liabilities, and equity at the end of a period.  It states the closing balances that are permanent and transferrable to the next accounting period.  The income statement is a financial statement that records the revenue, expenses, and income for the period.  The temporary closing balances are taken to this statement in order to determine the net income.

The relationship between the two statements is that the net income or loss that is extracted from the income statement is taken to the balance sheet.  The two statements are end-of-period financial statements that determine the financial profitability and the financial position (assets, liabilities, and equity) of the business.

Explanation:

In this instance, the template for adding and subtracting amounts in the rows is not available.  So the transactions have been recorded using the journal.  Most importantly, note that, each transaction increases or reduces the assets, the liabilities, and the equity, as the case may be.

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