Carrico Advertising Inc. performs advertising services for several Fortune 500 companies. The following information describes Carrico's activities during 2019.
a. At the beginning of 2019, customers owed Carrico $45,800 for advertising services performed during 2018. During 2019, Carrico performed an additional $695,100 of advertising services on account. Carrico collected $708,700 cash from customers during 2019.
b. At the beginning of 2019, Carrico had $13,350 of supplies on hand for which it owed suppliers $8,150. During 2019, Carrico purchased an additional $14,600 of supplies on account. Carrico also paid $19,300 cash owed to suppliers for goods previously purchased on credit. Carrico had $2,230 of supplies on hand at the end of 2019.
c. Carrico's 2019 operating and interest expenses were $437,600 and $133,400, respectively.
Required:
1. Calculate Carrico's 2019 income before taxes.
2. Calculate the ending balance of accounts receivable, the supplies used, and the ending balance of accounts payable.
3. Explain the underlying principles behind why the three accounts computed in Requirement 2 exist?