Your friend Jim Wilson is about to prepare the January 31 balance sheet for his new company, Cheap Fun Video Arcade. This is Cheap Fun’s first month of operation, and Jim is also going to calculate the first month’s net income. He needs to prepare the balance sheet and calculate net income so he can pass the information along to his parents. They loaned him $5,000 so that he could start Cheap Fun.

Although Jim thinks that business is booming, he has a big problem. He does not know enough about accounting to prepare the balance sheet or calculate January’s net income. As a matter of fact, Jim had never heard the words “balance sheet” and “net income” until his parents asked him to promise to furnish these statements to them every month before they would agree to loan Jim the $5,000.

Luckily, Jim saves every piece of paper associated with Cheap Fun. He kept copies of all of the business agreements he signed. He deposited all of the money Cheap Fun earned in the company’s bank account and retained copies of every deposit slip. Jim also paid every company bill with a check and saved all of the related documents.

Required: Assume Jim wants to prepare Cheap Fun’s January 31 balance sheet and January’s income statement according to generally accepted accounting principles. Describe to Jim, in your own words, how he should organize the information about Cheap Fun’s January transactions so that he can prepare a balance sheet and an income statement and keep his promise to his parents.  lo7