Richard Harris opened a gym and fitness studio called Body Builders Fitness Center at the beginning of November of the current year. It is now the end of December, and Harris is trying to determine whether he made a profit during his first two months of operations. You offer to help him and ask to see his accounting records. He shows you a shoe box and tells you that every piece of paper pertaining to the business is in that box.
As you go through the material in the shoe box, you discover the following:
a. A receipt from Galloway Properties for $9,000 for November's rent on the exercise studio.
b. Bank deposit slips totaling $7,500 for money collected from customers who attended exercise classes.
c. An invoice for $40,000 for exercise equipment. The first payment is not due until December 31.
d. A bill for $2,100 from the maintenance service that cleans the studio. Harris has not yet paid this bill.
e. A December 19 parking ticket for $75. Harris says he was in a hurry that morning to get to the
Fitness Center on time and forgot to put money in the parking meter.
f. A handwritten list of customers and fees for the classes they have taken. As the customers attend the classes, Harris writes their names and the amount of each customer's fee on the list. As customers pay, Harris crosses their names off the list. Fees not crossed off the list amount to $3,200.
g. A credit card receipt for $600 for printing flyers advertising the grand opening of the studio.
For convenience, Harris used his personal credit card.
h. A credit card receipt for $700 for four warm-up suits Harris bought to wear at the studio. He also put this purchase on his personal credit card.
Use the concepts you have learned in this chapter to help Harris.
1. Prepare an income statement for the first two months of operation of Body Builders Fitness Center.
2. How would you evaluate the results of the first two months of operation?
3. What advice would you give Harris concerning his system of accounting?