Financial Accounting

Anne Marie is the owner of Anne’s Beauty Salon, Inc.  Her accountant prepares a monthly financial statement for her business.  She doesn’t like to ask him questions about it.  She would rather ask you as you are her friend and since she knows that you are taking an accounting course, she asks you the following questions:   1.    What does net income mean on the income statement?  If I have enough cash at the end of the month then I assume I made money.  This concept of net income seems complicated. 2.    My accountant told me that the balance sheet shows assets = liabilities plus equity.  What does that mean? 3.    I don’t understand what the Statement of Retained Earnings is all about.  What is retained earnings? How would you respond to each of these questions?

Income Statement

Income Statement

Michael LaFountain: Michael LaFountain:
Rounding due to taxes.

																				Anne’s Beauty Salon, Inc	Note, Income Statements should be monthly. This Income Statement is for training purposes, ONLY!
For the Year 2015
Sales (Revenue)	$ 125,000.00
Cost of Sales		$ 25,000.00
Gross Profit	$ 100,000.00
Payroll Expense	$ 67,500.00
Sales, General, Administrative Expense			$ 5,000.00
Rent Expense	$ 1,400.00
Utilities Expense	$ 1,670.00
Insurance Expense	$ 500.00
Depreciation Expense	$ 2,500.00
Total Operating Expense	$ 78,570.00
Total Operating Income	$ 21,430.00
Taxes 30%	$ 6,430.00
Net Income			$ 15,000.00

Balance Sheet

Anne’s Beauty Salon, Inc
Balance Sheet

$ 5,000.00

$ 15,000.00

$ 25,000.00

$ 20,000.00

$ 67,797.50

At December 31, 2015
Assets	Liabilities
Current Assets	Current Liabilities
Cash	$ 949.50	Accounts Payable
Accounts Receivable	$ 11,948.00	Unearned Revenue	$ 200.00
Supplies	$ 20,500.00	Total Current Liabilities	$ 5,200.00
Prepaid Rent	$ 8,400.00
Prepaid Insurance	$ 6,000.00
Total Current Assets	$ 47,797.50	Note Payable
Equipment	Total Liabilities	$ 20,200.00
Less: Accumulated Depreciation	$ (5,000.00)		$ 20,000.00	Stockholders’ Equity
Total Long-Term Assets	Common Stock	$ 30,000.00
Retained Earnings		$ 17,597.50
Total Assets		$ 67,797.50	Total Liabilities and Stockholders’ Equity

Statement of RE

Anne’s Beauty Salon, Inc

$ 5,000.00

$ 15,000.00

$ 17,597.50

Statement of Retained Earnings
For the Month Ending December 31, 2015
Retained Earnings, December 1
Add: Net Income
Subtract: Dividends	$ (2,402.50)
Retained Earnings, December 31