Claudine, owner of Claudine's Internet Service, is puzzled by the income statement on the next page. She knows she withdrew $15,600 in cash from the company for personal expenses; yet the cash balance in the company's bank account increased from $460 to $3,100 from last June 30 to this June 30. She wants to know how her net income could be less than the cash she took out of the business if there is an increase in the cash balance. Her accountant has completed the closing entries and shows her the balance sheets for June 30, 20x8, and June 30, 20x7. He explains that besides the change in the cash balance, Accounts Receivable decreased by $1,480 and Accounts Payable increased by $380 (supplies are the only items Claudine buys on credit). The only other asset or liability account that changed during the year was Accumulated Depreciation-Office Equipment, which increased by $2,200.
Claudine's Internet Service
Income Statement
For the Year Ended June 30, 20 × 8
Revenue
Word processing services ................................................... $20,980
Expenses
Rent Expense ............................................. $2,400
Depreciation expense-office equipment .............. 2,200
Supplies expense ......................................... 960
Other expenses ........................................... 1,240
Total expenses ................................................................. 6,800
Net income ..................................................................... $14,180
Verify the cash balance increase by preparing a statement that lists the receipts of cash and the expenditures of cash during the year. Explain your treatment of word processing services, supplies expense, withdrawals, and depreciation?