Chapter 6
The Accounting Cycle: Statements and Closing Entries
137
MP Consulting
Income Statement (Pre-Adjustment)
For the Month Ended January 31, 2016
Service Revenue
$3,300
Expenses
Rent Expense
$800
Telephone Expense
250
Total Expenses
1,050
Net Income (Loss)
$2,250
________________
Figure 6.3
After the adjustments, the income statement can be prepared properly. In Figure 6.4, net income
is properly reported as $3,175. If no adjustments were made, net income would have been under-
stated, which would have caused owner’s equity to also be understated.
MP Consulting
Income Statement
For the Month Ended January 31, 2016
Service Revenue
$4,500
Expenses
Depreciation Expense
$150
Insurance Expense
100
Interest Expense
25
Rent Expense
800
Telephone Expense
250
Total Expenses
1,325
Net Income (Loss)
$3,175
________________
Figure 6.4
Statement of Owner’s Equity
The statement of owner’s equity reports any changes in equity during the reporting period. The
statement of owner’s equity for MP Consulting is shown in Figure 6.5. The statement of owner’s
equity represents the change to owner’s equity during the accounting period and is presented with
a date format of an elapsed time period similar to the income statement.
MP Consulting
Statement of Owner's Equity
For the Month Ended January 31, 2016
Parish, Capital at January 1
$5,300
Add:
Additional Investment
$5,000
Net Income
3,175
8,175
Subtotal
13,475
Less:
Parish, Drawings
2,000
Parish, Capital at January 31
$11,475
________________
Figure 6.5
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