ellis company keeps its accounting records on a cash basis during the year at year e 562559

Cash Basis Accounting Ellis Company keeps its accounting records on a cash basis during the year. At year end, it adjusts its books to the accrual basis for preparing its financial statements. At the end of 2006, Ellis Company reported the following balance sheet items:

Debit

Credit

Cash

$2,700

Accounts receivable

4,200

Inventory

5,600

Equipment

12,000

Accumulated depreciation

$4,800

Accounts payable

6,100

M. Ellis, capital

13,600

Totals

$24,500

$24,500

It is now the end of 2007. The company’s checkbook shows a balance of $4,700, which includes cash receipts from customers of $51,300 and cash payments of $49,300. An examination of the cash payments show that: (1)$30,600 was paid to suppliers, (2) $12,700 was paid for other operating costs (including $7,200 paid on January 1 for two years’ annual rent), and (3) $6,000 was withdrawn by M. Ellis. On December 31, 2007, (1) customers owed Ellis Company $5,900, (2)Ellis Company owed suppliers and employees $7,000 and $900, respectively, and (3) the ending inventory was $6,300. Ellis is depreciating the equipment using straightline depreciation over a 10 year life (no residual value).

Required

Using accrual based accounting, prepare (1) a 2007 income statement and (2) a December 31, 2007 balance sheet (show supporting calculations).

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