Book 1 - Chapter 13

13-2, continued

Supplies Expense is the supplies used up: $3,000 (balance on January 1) + $4,000 purchased – X
used up = $5,000 (balance on December 31). Therefore, $7,000 – X = $5,000. The supplies used
up is $2,000.

Service Revenue Earned is the sum of net income plus the total expenses. Now that you know
Supplies Expense, you can calculate the total expenses as $26,500. Therefore, total revenue is
$10,000 + $26,500 = $36,500.

If you use the second method: R – (12,000 + 7,500 + 3,000 + 2,000 + S) = 10,000. After you
calculate Supplies Expense, you have: R – 26,500 = 10,000. Therefore, revenue is $36,500.

Whichever method you use, you can now complete the income statement.

De Anza Operating Company
Income Statement
For the Year Ended December 31, 2008

Revenues
Service revenue earned		$36,500
Expenses
Rent expense	$12,000
Wages expense	7,500
Advertising expense	3,000
Utilities expense	2,000
Supplies expense	2,000
Total expenses		26,500
Net income

13-3. The income statement shows the effect of operations on the owner’s equity. The owner’s
equity is changed by the operational effects of (a) revenues and (b) expenses. Revenues increase
owner’s equity and expenses decrease owner’s equity.

Learning Goal 13, continued

SOLUTIONS

Section IV · The Essential Financial Statements

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