Scenario: You have accepted a job as the Controller of a start-up company a consulting firm, called Smith Steele Consulting. Smith is an excellent consultant, but not a good accountant. He has attempted to prepare the first month's financial statements; however, the statements do not balance. The financial statements are a good starting point, but your job is to correct the errors. Identify two errors in the Balance Sheet, two errors in the Income Statement, one error in the Statement of Owner's Equity, and two errors in the Statement of Cash Flows. You will want to keep in mind all that you have learned in terms of the items on financial statements which are duplicated and flow from one statement to another. Prepare corrected financial statements referencing GAAP using Microsoft Excel.

SMITH STEELE CONSULTING

Balance Sheet

August 31, 2011

AssetsLiabilities

Current assets:Current liabilities:

Cash................................ $21,300Accounts payable........ $ 1,250

Accounts receivable....... 3,800Prepaid rent................ 2,050

Supplies........................... 875Unearned fees.............. 1,150

Salaries payable............. 150Total liabilities......... ...$4,450

Prepaid insurance.......... 1,670

Total current assets ...$27,795

Property, plant, and

equipment:...................... Owner's Equity

Office equipment........... $21,250Sheila Shaw, capital....... 47,720

Less accum. depr........... 675

Total Property, plant,

and equipment............ 20,575Total liabilities and

Total assets...................... $48,370owner's equity............. $52,170

SMITH STEELE CONSULTING

Income Statement

For the Month Ended August 31, 2011

Fees earned.................................................................................... $24,325

Expenses:

Salary expense....................................................................... $1,550

Rent expense.......................................................................... 1,200

Supplies expense................................................................... 1,250

Insurance expense................................................................. 1,000

Miscellaneous expense.......................................................... 715

Interest expense.................................................................... 65

Bad Debt expense.................................................................. 150

Repairs and Maintenance.................................................... 200

Utilities expense.................................................................... 150

Payroll Tax expense.............................................................. 125

Office expense....................................................................... 525

Total expenses................................................................... 6,930

Net income..................................................................................... $17,395

SMITH STEELE CONSULTING

Statement of Owner's Equity

For the Month Ended August 31, 2011

Sheila Shaw, capital, August 1, 2007.......................................... $0

Additional investments during the month.................................. 36,000

Total............................................................................................... $36,000

Net income for the month............................................................ $17,395

Less withdrawals.......................................................................... 5,000

Increase in owner's equity........................................................... 12,395

Sheila Shaw, capital, August 31, 2007........................................ $48,395

SMITH STEELE CONSULTING

Statement of Cash Flows

For the Month Ended August 31, 2011

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income for the month:................................................... $17,395

Adjustment for depreciation....................................... 675

Cash provided by operating activities................................ 18,070

(Increase) in working capital items

Accounts receivable.......................................................... (3,800)

Supplies.............................................................................. (875)

Prepaid expenses............................................................... 3,720

Accounts payable.............................................................. 1,250

Salaries payable................................................................ 150

Unearned fees.................................................................... 1,150

Cash flows from operating activities........................................... $18,990

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of office equipment........................................... (21,250)

Cash flows from investing activities............................................ $(21,250)

CASH FLOWS FROM FINANCING ACTIVITIES:

Advances from shareholder (net of withdrawals)............. 31,000

Cash flows from financing activities........................................... $31,000

Net increase in cash...................................................................... $28,740

CASH-BEGINNING OF PERIOD............................................. 0

CASH-END OF PERIOD............................................................ $21,300