Kelly opened a photography business in a small shop that she rented from a large retailer, Eastfield Limited. She paid the first month's rent of $400 by writing a cheque from her personal account. Kelly took some of her own photography equipment and materials (worth $5000) into the shop, and also bought some new cameras so that she could take pictures of her customers with the best available technology. The cameras had a recommended retail price of $2500 but she was able to buy them on sale for $2200, charging them to her personal credit card. Kelly's first customer paid her $900 for a set of portraits, so she opened a bank account for the company. Her other customers have not yet paid her, owing a total of $3100. At the end of the first month of business, Kelly prepared the following financial statements .

Identify the assumptions that Kelly has violated, and explain how each event should have been handled. Prepare a corrected balance sheet and income statement.

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KELLY'S PROFESSIONAL PHOTOGRAPHY BALANCE SHEET AS AT 31 MAY 2016 Cash Equipment $ 900 2500 Equipment Net profit 3 400 Shareholders' equity 400 2500 $ 3 400 KELLY'S PROFESSIONAL PHOTOGRAPHY INCOME STATEMENT FOR THE MONTH ENDED 31 MAY 2016 Sales 4000 Rent 3 400 2900 1.100