Royal Sales experienced the following events during 2013, its first year of operation:
1. Started the business when it acquired $80,000 cash from the issue of common stock.
2. Paid $35,000 cash to purchase inventory.
3. Sold inventory costing $21,000 for $40,500 cash.
4. Physically counted inventory showing $13,500 inventory was on hand at the end of the accounting period.
Required:
a. Open appropriate ledger T-accounts, and record the events in the accounts.
b. Prepare an income statement and balance sheet for 2013.
c. Explain how differences between the book balance and the physical count of inventory could arise. Why is being able to determine whether differences exist useful to management?