ACC 1010 Module 1 Financial Statements Homework Example

Delaware River Music, Inc.: First-Month Transactions and Financial Statements for June 2026

Student Name

Bachelor of Science in Business Administration, Thomas Edison State University

ACC-1010: Principles of Financial Accounting

Mentor Name

Month Day, Year

Delaware River Music, Inc.: First-Month Transactions and Financial Statements for June 2026

Delaware River Music, Inc. is a composite corporation that opened on June 1, 2026, in Hamilton Township, New Jersey. It sells instruments and accessories, rents band instruments to families of school students and sells private lesson packages taught in two studios at the back of the store. This homework records the store's first month of business in the accounting equation and then prepares the four basic financial statements for June. Instruments were purchased in June but none were sold until July, so June's revenue comes only from lessons and rentals; merchandise sales and cost of goods sold are covered in later modules. Adjustments such as depreciation of the store fixtures are also left for the accounting cycle in Module 2.

Part A: Transaction Analysis

Each transaction affects at least two accounts, and after every transaction total assets equal total liabilities plus stockholders' equity. The table shows the effect of each June transaction.

Three entries deserve comment. The purchase of fixtures exchanges one asset, cash, for another, so total assets do not change. The school district rental is revenue in June even though no cash arrived, because the store earned it by providing the instruments during June; this is the accrual basis that the textbook stresses from its first chapter (Williams et al., 2023). The utility bill is an expense of June for the same reason, even though it will be paid in July. The dividend lowers retained earnings without ever touching the income statement; it hands profit back to the shareholders and costs the store nothing in earning its revenue.

Part B: Financial Statements

The statements are prepared in order, because each supplies a figure to the next: the income statement's bottom line feeds retained earnings, the closing retained earnings figure feeds the balance sheet, and the change in cash on the balance sheet is explained by the statement of cash flows.

Part C: What the Statements Tell Their Users

The store made a profit of $2,260 in June but used $8,200 of cash in its operations, mainly because it paid $10,000 toward inventory it has not yet sold. That gap is not a sign of trouble; it reflects the timing difference between cash payments and the recognition of revenues and expenses. Dechow (1994) showed that, measured over brief intervals, earnings built on accruals track how a company is really doing better than its cash flows, since accruals pair each period's revenue with what it cost to earn. A lender reading only the cash flow statement might think the store was failing; reading it with the income statement shows a business building inventory before its busy back-to-school season.

Different users will focus on different parts of these statements. The bank that lent $25,000 will look at cash, the store's ability to keep paying wages and rent, and the $37,640 of liabilities relative to the owners' $61,260 of equity. The owners will watch net income and the return on their investment. The instrument supplier, owed $12,000, will check whether cash is sufficient to pay on time. According to the conceptual framework (Financial Accounting Standards Board, 2010), general purpose financial reports exist to help people who supply or might supply money to a business, such as shareholders and lenders, decide whether to do so, and every reader named here is making exactly that kind of decision.

References

Dechow, P. M. (1994). Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals. Journal of Accounting and Economics, 18(1), 3-42. https://doi.org/10.1016/0165-4101(94)90016-7

Financial Accounting Standards Board. (2010). Conceptual framework for financial reporting (Statement of Financial Accounting Concepts No. 8).

Williams, J. R., Bettner, M. S., & Smith, K. R. (2023). Financial & managerial accounting: The basis for business decisions (20th ed.). McGraw-Hill Education.