Cash-Basis Accounting
Response to the following problem:
Ellis Company keeps its accounting records on a cash basis during the year. At year-end, it adjusts its books to the accrual basis for preparing its financial statements. At the end of 2009, Ellis Company reported the following balance sheet items:
|
|
Debit
|
Credit
|
|
Cash
|
$ 2,700
|
|
|
Accounts receivable
|
4,200
|
|
|
Inventory
|
5,600
|
|
|
Equipment
|
12,000
|
|
|
Accumulated depreciation
|
|
$ 4,800
|
|
Accounts payable
|
|
6,100
|
|
M. Ellis, capital
|
|
13,600
|
|
Totals
|
$24,500
|
$24,500
|
It is now the end of 2010. The company's checkbook shows a balance of $4,700, which includes cash receipts from customers of $51,300 and cash payments of $49,300.
An examination of the cash payments show that: (1)$30,600 was paid to suppliers, (2) $12,700 was paid for other operating costs (including $7,200 paid on January 1 for two years' annual rent), and (3) $6,000 was withdrawn by M. Ellis.
On December 31, 2010, (1) customers owed Ellis Company $5,900, (2) Ellis Company owed suppliers and employees $7,000 and $900, respectively, and (3) the ending inventory was $6,300. Ellis is depreciating the equipment using straightline depreciation over a 10-year life (no residual value).
Required
Using accrual-based accounting, prepare (1) a 2010 income statement and (2) a December 31, 2010 balance sheet (show supporting calculations).