You open a consulting business on January 1st and must account for the following transactions during a one month period:
Day 1: You contribute $10,000 of your own money to the business for initial expenses.
Day 1: Hire an administrative assistant who will work Monday - Friday; pay: $500/week; pay-day: every 2 weeks. He begins on day 1.
Day 2: Take care of normal business start-up issues:
1. Rent Office Space: You pay $6,000 in advance for the entire first year's rent and $500 as a security deposit.
2. Buy Insurance: you pay $600 for 6 months coverage
3. Buy Office Supplies: you pay $100
4. Rent Office Equipment and Furniture: you pay $750 for a 3-month lease
Day 4: You staff a table at a Career Fair and secure 20 clients during the day; you charge $100/client for the advice you provide but offer a 10% discount for cash; half pay you cash, the other half promise to pay at the end of the month (Career Fair lasts one day)
Day 12: You receive a $500 fee for making a luncheon presentation at the local Kiwanis Club.
Day 14: Payday for your administrative assistant for two weeks of work.
Day 17: Pay contracting consultant $1000 to create training program. Delivery date for program materials is February 15th.
Day 25 : You sign a consulting contract that will begin February 1st and pay you $1,000 per month for the remainder of the year.
Day 27: Meet with attorney to discuss copyright options for training program the contracting consultant will create. Pay the attorney $500 ($250 per hour) to cover the cost of the meeting.
Day 29: Payday for your administrative assistant for two weeks of work.
Day 30: You secure a loan of $50,000 from your favorite bank and receive the money that day.
•1 - Identify how the appropriate category would be affected by each transaction (i.e., increased or decreased), and the dollar amount of the transaction (e.g., +$250, or -$400). (Provide whatever comment you believe necessary to explain your decisions.
•2 - Based upon the above transactions, assemble an income statement to determine net profit or net loss using the Accrual Method of Accounting.