Financial statements

We-Sell Realty, organized August 1, 2016, is owned and operated by Omar Farah. How many errors can you find in the following statements for We-Sell Realty, prepared after its first month of operations?

Financial statements:

Financial statements refer to those statements, which are prepared by the Company according to particular formats in accounting to show its financial position.

Financial statements include the following statements:

• Cash flow statement

• Income statement

• Balance sheet

• Statement of Owner's Equity

To Identify: The errors in the given financial statements of Company WSR.

Income statement:

This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time. The following mistakes are present in the given income statement.

• The income statement is prepared for the month of August; hence it should be labeled “For the Month Ended August 31, 2016.”

• The miscellaneous expense is shown as the last expense in the income statement.

• In the given income statement, the total expenses of $115,850 is subtracted from the sales commissions of $140,000. But the subtraction is done wrong resulting in a false net income amount of $25,000. The correct net income should be $24,150.

Statement of owner's’ equity:

This statement reports the balance of owner’s equity after all the adjustments like additional capital, net income from income statement and drawings at the end of the particular period.

• The heading of the statement of owner’s equity should show Company WSR instead of “Company OF”. The statement of owner's equity is prepared for the month of August; hence it should be labeled “For the Month Ended August 31, 2016.”

• The heading of the statement of owner’s equity is showing an incorrect year. It should be 2016 rather than 2015.

• In the given income statement, the total expenses of $115,850 is subtracted from the sales commissions of $140,000. But the subtraction is done wrong resulting in a false net income amount of $25,000. The correct net income should be $24,150...

To Prepare: The correct financial statements of Company WSR.