S1-1 Explaining revenues and expenses [5 min] Sherman Lawn Service has been open for one year, and Hannah Sherman, the owner, wants to know whether the business earned a net income or a net loss for the year. First, she must identify the revenues earned and the expenses incurred during the year Requirements 1. What are revenues and expenses? 2. If revenues increase, what would be the effect, if any, on equity? S1-2 Users of financial information [5 min] Suppose you are the manager of Greg's Tunes. The company needs a bank loan in order to purchase music equipment. In evaluating the loan request, the banker asks about the assets and liabilities of the business. In particular, the banker wants to know the amount of the busines's owner's equity, equirements 1. Is the banker considered an internal or external user of financial information? Which financial statement would provide the best information to answer the 2. bankers questions? $1-5 Organizing a proprietorship [5-10 min) You begin No Limits Cell Service by investing $10,000 of your own money in a busi ness bank account. You receive capital. Then the business borrows $5,000 cash by signing a note payable to Summit Bank. Requirement 1. Identify the advantages and disadvantages of owning a proprietorship. Applying accounting concepts and principles [5-10 min] Michael McN campus of Pensacola State College. The business has cash of $8,000 and furniture that cost $9,000 and has a market value of $13,000. Debts include accounts payable of $6,000. Michael's personal home is valued at $400,000 and his personal bank account has a balance of $1,200. amee is the proprietor of a property management company near Requirements 1. Consider the accounting principles discussed in the chapter and define the prin- ciple that best matches the situation: a. Michael's personal assets are not recorded on the property management com- pany's balance sheet. b. Michael records furniture at its cost of $9,000, not its market value of $13,0 c. Michael does not make adjustments for inflation. d. The account payable of $6,000 is documented by a statement from the furmi ture company showing the business still owes $6,000 on the f Michael's friend thinks he should only owe about $$,000. The account payable is recorded at $6,000. 2. How much equity is in the business