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Use and Interpretation of Financial Statements
Aqua Swimming Club's financial statements follow.
Aqua Swimming Club Income Statement For the Month ended November 30, 2014
Revenues:
Swimming lesson revenue
$4,650
Locker rental revenue
1,275
Total revenues Expenses:
$5,925
Salaries expense
$1,125
Supplies expense
750
Utilities expense
450
Total expenses
2,325
Net income
$3,600
Aqua Swimming Club Statement of owner's equity For the Month ended November 30, 2014
Owner's capital, October 31, 2014
$34,975
Investment by owner
5,000
Net income for the month
3,600
Subtotal
$43,575
Less withdrawals
2,400
Owner's capital, November 30, 2014
$41,175
Aqua Swimming Club Balance Sheet November 30, 2014
Assets
Liabilities
Cash
$ 7,125
Accounts payable
$13,350
Accounts receivable
900
owner's equity
Supplies
Owner's capital
41,175
Land
15,750
Building
22,500
Equipment
7,500
Total assets
$54,525
Total liabilities and owner's equity
Aqua Swimming Club Statement of Cash Flows
For the Month ended November 30, 2014
Cash flows from operating activities:
Net income Adjustments to reconcile net income to net cash flows
from operating activities:
Increase in accounts receivable
$ (400)
Increase in supplies
(550)
Increase in accounts payable
400
Net cash flows from operating activities
$3,050
Cash flows from investing activities:
Sale of equipment
$ 2,000
Purchase of equipment
(1,000)
Net cash flows from investing activities
1,000
Cash flows from financing activities:
$ 5,000
Cash withdrawals
(2,400)
Net cash flows from financing activities
2,600
Net increase in cash
$6,650
Cash at beginning of month
475
Cash at end of month
$7,125
Required:
1. Accounting ConneCtion- Explain how Aqua Swimming Club's four statements relate to each other.
2. Business Application- Which statements are most closely associated with the goals of liquidity and profitability? Why?
3. Business Application- If you were the owner of this business, how would you evaluate the company's performance? Give specific examples.
4. ACCounting Connection- If you were a banker considering Aqua Swimming Club for a loan, why might you want the company to be audited by an independent CPA? What would the audit tell you?
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