Cody Packwood is planning to manage and operate Ace Caddy Service at The Glen Golf and Country Club from June through August 2015. Cody will rent a small maintenance building from the country club for $600 per month and will offer caddy services, including cart rentals, to golfers. Cody has had no formal training in record keeping.
Cody keeps notes of all receipts and expenses in a shoe box. An examination of Cody’s shoe box records for June revealed the following:
June 1. Withdrew $2,500 from personal bank account to be used to operate the caddy service.
1. Paid rent to The Glen Golf and Country Club, $600.
2. Paid for golf supplies, $750.
3. Arranged for the rental of 25 regular (pulling) golf carts and 10 gasoline-driven carts for $2,000 per month. Paid $500 in advance, with the remaining $1,500 due June 20.
7. Purchased supplies, including gasoline, for the golf carts on account, $500.
The Glen Golf and Country Club has agreed to allow Cody to store the gasoline in one of its fuel tanks at no cost.
15. Received cash for services from June 1–15, $2,350.
17. Paid cash to creditors on account, $500.
20. Paid remaining rental on golf carts, $1,500.
22. Purchased supplies, including gasoline, on account, $400.
25. Accepted IOUs from customers on account, $1,200.
28. Paid miscellaneous expenses, $150.
30. Received cash for services from June 16–30, $2,650.
30. Paid telephone and electricity (utilities) expenses, $140.
30. Paid wages of part-time employees, $450.
30. Received cash in payment of IOUs on account, $800.
Cody has asked you several questions concerning his financial affairs to date, and he has asked you to assist with his record keeping and reporting of financial data.
a. To assist Cody with his record keeping, prepare a chart of accounts that would be appropriate for Ace Caddy Service.
b. Prepare an income statement for June to help Cody assess the profitability of Ace Caddy Service. For this purpose, the use of T accounts may be helpful in analyzing the effects of each June transaction.
c. Based on Cody’s records of receipts and payments, calculate the amount of cash on hand on June 30. For this purpose, a T account for cash may be useful.
d. A count of the cash on hand on June 30 totalled $3,600. Briefly discuss the possible causes of the difference between the amount of cash computed in (c) and the actual amount of cash on hand.