mothers day

SUMMARY

Mother’s Day, a play by J. B. Priestley, portraying the status of a mother in a household. Priestly humorously explores the story when Mrs. Pearson, in her forties, stands up for her rights and how her family reacts at this. Mrs. Pearson is very fond of her family and works day and night to support her family member in the best possible manner. However, she is upset at the way she is being treated. Nobody cares for her or asks about her. All day long she stays at home doing all the work. In the evening when the kids and her husband return she gave threw herself in meeting their demands. She did not want any dislikeable thing to happen in her household yet she craved for their attention and a little respect. She went to her neighbour Mrs. Fitzgerald, a fortune teller and a magician. Older and heavy, Mrs. Fitzgerald comes with a plan. She proposed that they could exchange bodies and then with Pearson’s body, she would teach a lesson to Pearson’s family that Mrs. Pearson could not herself for she was too humble and nice to do that.

Though reluctant, Mrs. Pearson agreed to the idea and the two exchanged their bodies. Mrs. Pearson was still not sure and asked Mrs. Fitzgerald if she could get her body back. However, determined Fitzgerald tells Pearson to not worry and that she would handle the matter carefully. She left for Pearson’s home with Mrs. Pearson’s body. She entered the home and knew what she was to do to teach Pearsons' a lesson so they would not bother Mrs. Pearson in future unnecessarily. Mrs. Pearson (Mrs.Fitzgerald’s soul) smoked a cigarette and was confident than ever. A few moments later, her daughter, Doris Pearson, entered the house and started demanding tea and her dress. Mrs. Pearson was sure to make her realise that she was Doris’ mother and not a servant. She was stunned to see her mother smoking and that she had not prepared tea for her and that her dress was not ready as well. Doris told her mother that she was to go out with her beau Charles Spencer on which the mother remarked if she could not find someone better. This broke Doris and she left weeping.

Then came the son, Cyril Pearson, who is amused at his mother’s strange behaviour. They get into an argument. The children could not baffle the situation. When the mother left to fetch the stout, the children discussed their mother’s behaviour. Doris felt that it might have been that mother got her head hit. Then enters mother with a bottle of stout and a glass half filled with it. The children began to laugh and the mother chided them and asked them to behave like grown-ups. Doris then asked her mother for her such behaviour and if they had done something wrong. Then Mrs. Pearson tells them that it is actually the children’s and her husband’s behaviour that has disturbed her. They always come and go without bothering about her. They demand duties from her and she does her best to keep everyone happy and still no body is bothered about her. She remarks that while the three of them do a job of forty hours a week with two days as weekend, she goes on working seven days round the clock. She proclaimed that she would do some work on Saturday and Sunday only if she is thanked for everything.

When the mother scolded Doris and Cyril duly, entered George Pearson and is annoyed at her wife sipping stout. He told her that he would have supper at the club and that he did not want tea. The wife told him that there was no tea. He got annoyed and the wife then said that when he did not want tea then why was he fighting for it. Mr. Pearson is flabbergasted at such conduct of his wife. The wife continues to rebuke the husband telling him that why he goes to club when he is a joke among all there. He is stunned and demanded the truth from his son. Cyril got upset at his mother yet told the father that it was the truth.

Then enters Mrs.Fitzgerald (actually Mrs.Pearson). Mrs. Pearson(actually Mrs.Fitzgerald) told her that she was just putting everyone at place and that the things were alright. Mrs.Pearson(Mrs.Fitzgerald in body) requested to have her body then and Mrs.Pearson(Mrs.Fitzgerald in body) on a condition that Pearson would not go soft on her family again. They got into their original bodies and Mrs.Fitzgerald left. The mother and the children and husband smiled at each other and it was decided that they all will have the dinner together and play a game of rummy.

THE TALE OF MELON CITY

SUMMARY

The poem The Tale Of Melon City is a narrative poem about how a melon, following a custom, was chosen to become the king of a state. It narrates in an amusing tone the events leading to such a situation when no other but a melon was coronated as the king.

The poem begins with the description of a just and peace loving king ruling an ancient state. Once the king planned to construct an arch, spanning the main  thoroughfare. The purpose of the arch was to improve the onlookers morally and provide aesthetic joy to them. The plan of the king was executed immediately.

One day the king was passing by the side of the thoroughfare. The arch was constructed very low so that the king's crown struck against  it and fell off. Immediately the king responded negatively. He felt dishonoured. He decided to hang the chief of builders holding him responsible. Necessary arrangements were made for the hanging.

The chief of builders in his defence shifted the responsibility to the labourers. On hearing so, the king adjourned the proceedings for a moment,then decided to have all the labourers hanged. According to the labourers, it all happened due to faulty size of the bricks. So, the king summoned the masons. They, in their turn, put the blame on the architect. The king decreed to hang the architect. The architect reminded the king that he had made certain amendments to the plans when they were shown for his approval. In a way, the architect  indirectly put the blame on the king. The argument of the architect left the king completely confused. Considering the matter to be intricate, the king sought the advice of a wise man. He ordered to bring to him the wisest man in the country.

The king's men could find out the wisest man and, accordingly, he was brought to the court of the King. He was so old that he could neither walk nor see. According to the old man, the the real culprit was the the arch. It was the arch that hit the crown violently and it fell off. So, the arch was to be hanged. The arch was led to the scaffold. At that time, a councillor said that it would be very shameful act to hang the arch that hit the king's head.

The crowd was getting restless. In order to appease the mass, the king commented that some one must be hanged as it was the public demand. The noose was set up. It was somewhat high. Each man was measured turn by turn. Interestingly, there was one man who was tall enough to fit in the noose, and it was the King. So, his majesty was  hanged.

The ministers heaved a sigh of relief that they were able to find someone, otherwise the crowd might have risen in revolt. Now the issue came up as to who would be the king of the state. The old custom was invoked. They sent out the heralds to proclaim that the next to pass the City Gate would choose the King. An idiot happened to pass the City Gate. The idiot was asked who was to be the king. The idiot uttered Melon. Actually that was his pet answer to all questions since he liked melons. The ministers coronated a melon and placed the melon king reverently at the throne.

All these events took place long long ago. Now when someone asks the people how is it that their King appears to be a melon, they reply that if His majesty takes delight in being a melon, that is all right with them. They have no right to say what he should be as long as he leaves them in peace and liberty. It seems that the principles of non-interference are well established in that state.

The Browning Version (hornbill)

The Browning Version

By Terence Rattigan

Introduction

This play highlights the attitude of a teenaged student towards his teacher. His comments are shocking because they are very close to reality. He imitates the voice of Mr. Crocker-Harris. He calls the man almost inhuman. He is mortally afraid of his teacher. His promotion depends on the whim or goodwill of his teacher. But he opens up when the other science teacher encourages him to do so. He hates the Greek play because he does not like the teacher’s method of teaching. Mr. Crocker Harris seems to hate people in order to make them like him.

The description of the teacher is damaging. It reflects upon the hopeless quality of teachers.

Summary

John Taplow, who is about sixteen years old and in the lower fifth form of an English public school, appears at the flat of Andrew Crocker-Harris for an end-of-term tutorial in the hope of being advanced to the upper fifth. Seeing a box of chocolates, he helps himself to two pieces, eats one, and then, either out of conscience or fear of being caught, replaces the other.

Shortly thereafter, Frank Hunter arrives, and in the course of the conversation between the two it becomes clear that Crocker-Harris is retiring because of ill health. Known for his strict discipline, students dub him the “Crock” and “Himmler of the lower fifth.” Hunter, on the other hand, enjoys easy rapport with students, as can be seen in Taplow’s readiness to share confidences with him. While they wait for the “Crock” to appear, Hunter instructs Taplow in a proper golf swing. Taplow admits that, although like most students he had his share of fun at Crocker-Harris’s expense, he does have sympathy for him.

Taplow is in the midst of mimicking the master when Millie Crocker-Harris enters and overhears the mimicry. She dispatches Taplow on an errand to the druggist for Crocker-Harris’s heart medicine so that she can be alone with Hunter, with whom she is having an affair.

Crocker-Harris appears, only to find that Taplow is not there. When Taplow returns, Millie leaves to prepare dinner, and Hunter leaves pupil and master to their work on

CHILDHOOD

SUMMARY

Theme:
In this poem, the poet, Markus Natten wonders when and where he lost his childhood. In this quest to find the moment he grew up, Markus highlights the innocence and faith he lost even as he gained rational individuality.

Adolescence is usually a confusing time for a child who is unable to immediately come to terms with the physical, hormonal and psychological changes in his or her personality. He no longer feels like a child but is not quite ready to call himself an adult either.

In the poem, 'The Rainbow', William Wordsworth claims, 'Child is the father of man'. Markus seems to be echoing this thought as he underscores how in our childhood innocence lay our ability to appreciate the simpler aspects of life and thus, the child can teach the adult how to appreciate things the latter often takes for granted.

The refrain:
The refrain of any poem is/are line (s) that repeat at regular intervals throughout the poem. The refrain often carries the central message of the poem. The two lines which do so in this poem are:
When did my childhood go?.... 
Was that the day!
The first line (which is a question) identifies the central theme of the poem, that is, the attempt to identify when exactly the poet lost his childhood.
The second line begins with a question word but ends with an exclamation. Hence, it is no more a mere question. Rhetorical in nature, this line brings out the poet's sense of realisation.


Stanza - wise interpretation:

Stanza 1: 
The poet wonders when he lost his childhood. He muses that perhaps it was the day he realised that the concepts of Heaven and Hell, he had been taught of since his youngest years, had no standing in the light of the day. Geography textbooks did not give the location of any such place. Education made the poet question his faith and look at the world much more rationally. The poet realises that he might have lost his childhood when he gained this rational outlook.

Stanza 2:
In the second stanza, the poet recalls the time when he realised that the adults around him did not practise what they preached. They told the poet to be loving and caring, however, they were themselves argumentative, violent and discourteous. Their behaviour was a far cry from the love they sermonised about and advocated so reverently to the child. 
Thus, the child lost his faith in the adults around him, whom he had so far, trusted without question. Their latent hypocrisy became evident to the growing child. Perhaps, says Natten, that broken trust was one of the major steps towards adulthood.
Notice, that this is perhaps, the longest line of the poem. Markus Natten is a genius at putting punctuation to use. The length of this line and the difficulty to recite it in one go, indicates that this is perhaps the biggest loss the child has suffered.

Stanza 3: 
As he grew up, the poet realised that his mind was unique, could form its own opinions and could take its own decisions. He gained a sense of individuality which set him free from the prejudiced opinions of others around him. His own experiences shaped his thoughts now and he realised that this might have been the time he lost his childhood innocence completely.

Stanza 4: 
In the final stanza, the poet changes his question. From wondering at what point in time, he had lost his childhood, the poet now wonders where it went.
The last three lines may be interpreted in two ways.
The poet claims that his childhood is nothing more than a long lost memory. He recalls his infancy and believes that his true childhood resides there, in that infant's face, and that innocence cannot resurface in this lifetime.
The poet believes that his childhood has become nothing more than a memory for him but has become the reality of some other infant. Innocence is a cyclical process where lost from one person, it travels to another, finding residence there. Thus, till date, adults can easily recall and seem to almost relive their own childhood, through an infant in their lives.

HORNBILL

SUMMARY OF DISCOVERING TUT

The mummy of King Tut

As the mummy of King Tut was glided for performing a CT scan, angry winds stirred and dark clouds covered the stars. His scan was being done to unearth the mysteries that had surrounded his death.Tourists had lined to pay their respects to the ‘mummy’ of the famous Egyptian king Tutankhamun and made speculations about his untimely death.

“Funerary treasures”

The mummy was in a very bad state, according to Zahi Hawass, Secretary General of Egypt's Supreme Council of Antiquities. King Tut’s tomb was first discovered in 1922 by Howard Carter, a British archaeologist. Tut was found buried with numerous “funerary treasures” in a coffin made of pure gold. The treasures found included precious collars, inlaid necklaces and bracelets, rings, amulets, a ceremonial apron, sandals and sheaths for his fingers and toes. These treasures are till date the richest royal collections ever found. Some everyday items considered to be needed in the afterlife, like board games, bronze razor, linen undergarments, cases of food and wine were also found. This revealed that the ancient Egyptians believed in the idea of resurrection and hoped to take their riches with them.

Carter’s investigations and the problems faced

Carter investigated the three nested coffins. In the first, a shroud adorned with garlands of willow and olive leaves, wild celery, lotus petals and cornflowers were found. This gave vague evidence that the death might have taken place in the month of March or April.Carter faced difficulty in extracting the mummy of the king out of the coffin. The ritual resins had hardened resulting in cementing of Tut to the bottom of the solid gold coffin. Though Carter unsuccessfully tried to use sun to loosen the resins, there was no other way left to separate the mummy from the adornments than to chisel it away. Its head had to be removed and the major joints had to be detached.The only ground for Carter to defend himself for chiselling Tut was that thieves would have ripped the body apart to rob the gold, if he had not chiselled it.
 
Another revelation

As the archaeology changed with the advent of time, it focused more on details of life and mysteries of death than on treasures. Some 40 years after Carter’s discovery, in 1968 a startling fact was revealed, in the discovery of an anatomy professor who had X-rayed the mummy. He claimed that the breast-bone and the front ribs of the mummy were missing.

Tut’s family history

Amenhotep III (Tut’s father or grandfather) ruled for almost four decades during the 18^th dynasty golden age. He was succeeded by his son Amenhotep IV who pioneered one of the odd periods in the history of ancient Egypt. He made some drastic and unpleasant changes. He promoted the worship of the Aten, the Sun disk, and changed his name to Akhenaten. He moved the religious capital to the new city of Akhetaten. He made some drastic unpleasant changes. He destroyed the images and temples of Amun, a major god. After his demise, a ruler named Smenkhkare reigned for a brief time. Finally, Tutankhaten(the name was later changed to Tutankhamun) took the throne and restored the old order destroyed by his predecessors. He reigned for about nine years.

The death of King Tut

Tutankhamun or King Tut as he’s widely known today, died as a teenage pharaoh (ancient Egyptian king) and buried laden with gold. He was the last heir of the family of rulers who had ruled Egypt for centuries. His unexpected demise was a big event and the reasons for his death remained unclear. Two of the biggest questions are still unanswered about him – “how did he die, and how old was he at the time of his death?”

The CT scan

In the year 2005, (more than 3,300 years after his death), King Tut’s mummy became one of the first mummies to undergo a CT scan-“in death, as in life, moving regally ahead of his countrymen.” The CT scan was led by Zahi Hawass and done with a portable CT machine. The scan came up with new clues about his life and death. It provided precise data for an accurate forensic reconstruction of King Tut. Due to sand in the cooler fan of the CT machine, they had to use two plastic fans to complete the scanning processTut’s body was examined over a computer screen with the help of the CT scan. It showed a grey head, neck vertebrae, a hand, several images of the rib cage and a transection of the skull. After collecting the data for scan, the Pharaoh is sent back to the place he belonged, i.e. his coffin. It was a relief for Zahi Hawass as “nothing had gone seriously wrong” with the mummy.After their observations, when they left, the wind had stopped and the surrounding came to a deathly silence. In the sky, just above the entrance to Tut's tomb stood Orion, the constellation, also called by the Egyptians as the soul of Osiris, the God of afterlife, watching over the boy king.

ACCOUNTANCY

PROCESS AND BASES OF ACCOUNTING

Accruals and accrual accounting; accounts receivable and salary payable; interest receivable, interest revenue, interest payable, and interest expense.

1. Cash and accrual bases of accounting

We have discussed transactions that include direct and immediate cash flows. Cash was received in the period of earning revenues, or cash was paid in the period of incurring expenses. This is called cash accounting.

Cash (or cash-basis) accounting recognizes the effects of accounting events when cash is exchanged regardless of the time events occur. Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP).

However, more than often another situation takes place. Cash flows do not match with revenue and expense recognition. This situation falls under the accrual accounting.

Accrual (or accrual-based) accounting recognizes the effects of accounting events when such events occur regardless of the time cash is exchanged.

Accrual accounting closely relates to the definition of accounting event recognition.

Recognition is the fact of recording an event in financial records (books).

A recognition act may occur before or after cash has been collected or paid.

The term accrual means that recognition is made before cash is paid or collected.

Illustration 1: Cash accounting and accrual accounting

2. First illustration of accrual accounting

The following illustration will provide a good example of accrual accounting.

Candely Services started its operations on January 1, 20X6 when the business owner contributed $3,500 in cash. During the accounting period of 20X6 the owner, Mr. Candely, provided consulting services to customers and billed them $2,800. By the end of the accounting period he was able to collect $2,000 of $2,800 billed, leaving a balance of $800 due at the year-end. In addition, Mr. Candely incurred $1,500 liabilities for the only employee's salary. The company had paid $1,000 of this amount in 20X6, leaving a year-end balance due of $500. As of December 31, 20X6 Mr. Candely also had outstanding contracts for consulting services to be performed in 20X7 that amounted to $1,600.

The paragraph above includes the following five accounting events that we will discuss:

1. The owner contributed $3,500 to the business.
2. Assets obtained in 20X6 accounting period through performing services amounted to $2,800 and contracts for services to be performed in 20X7 amounted to $1,600.
3. $2,000 cash was collected from the customers who had been billed for services provided.
4. Salary expense for the employee amounted to $1,500.
5. The employee was only paid $1,000 during 20X6 (see Event No. 4) and was to receive another $500 during 20X7.

Let us look at each of these accounting events.

2.1. Capital acquisition transaction analysis

1) Capital acquisition of $3,500 is an asset source transaction. The transaction acts to increase assets (Cash) and equity (Contributed Capital).

Note: While looking at the scheme below ignore account titles that are unfamiliar at this time; they will be explained later when introduced:

Illustration 2: Effect of capital acquisition

	Assets			=	Liabilities	+	Equity
	Cash	+	Accounts Receivable	=	Salaries Payable	+	Contributed Capital	+	Retained Earnings
Beginning Balances	$0		$0	=	$0		$0		$0
Capital Acquisition	3,500						3,500
Ending Balances	$3,500	+	$0	=	$0	+	$3,500	+	$0

2.2. Recording revenue on account transaction analysis

2) According to the accrual accounting rules, the $2,800 of revenue should be recognized in 20X6, although only $2,000 of this amount is collected in that period. As you can see, revenue recognition ($2,800) and cash collection ($2,000) do not go side by side (they are separated in time). In our case, Mr. Candely's productive activity has resulted in an asset increase of $2,800. This asset is called an account receivable.

Accounts receivable refer to amounts of future cash receipts that are due from customers (i.e., amounts to be collected in the future). Accounts receivable are shown on the asset side of the balance sheet.

The transaction of revenue recognition is an asset source transaction:

Illustration 3: Effect of recognizing accounts receivable and revenue

	Assets			=	Liabilities	+	Equity
	Cash	+	Accounts Receivable	=	Salaries Payable	+	Contributed Capital	+	Retained Earnings
Beginning Balances	$3,500	+	$      0	=	$      0	+	$3,500	+	$      0
Recognizing Assets / Revenue			+2,800						+2,800
Ending Balances	$3,500	+	$2,800	=	$      0	+	$3,500	+	$2,800

Note that the contracts for $1,600 of consulting services to be performed in 20X7 are not recognized in 20X6. The reason is that revenue can be recorded only when services have been provided. Thus we will leave this $1,600 without recording until Mr. Candely provides services in 20X7.

2.3. Cash collection transaction analysis

3) Now we will record the collection of $2,000 in cash. Because we have already recorded that amount as an account receivable (Event No. 2), we just need to transfer the amount from the account receivable to cash $2,000. The Cash account will increase and the Account Receivable account will decrease. This is an asset exchange transaction.

Asset exchange transactions occur when only asset accounts are engaged in a transaction. For example, collection of cash on accounts receivable is an asset exchange transaction. Total assets remain unchanged after such transactions.

Illustration 4: Effect of cash collection

	Assets			=	Liabilities	+	Equity
	Cash	+	Accounts Receivable	=	Salaries Payable	+	Contributed Capital	+	Retained Earnings
Beginning Balances	$3,500	+	$2,800	=	$      0	+	$3,500	+	$2,800
Cash Collection	+ 2,000		(2,000)
Ending Balances	$5,500	+	$800	=	$      0	+	$3,500	+	$2,800

Also make certain to note that in this transaction revenue is not affected. The revenue recognition of $2,800 already happened when we recorded the increase in the account receivable (Event No. 2). If we had recorded revenue again when we received cash, then the revenue would have been recorded twice. This would not be in accordance with generally accepted accounting principles.

2.4. Recording salary payable transaction analysis

4) Liabilities and corresponding expenses can also be recorded before cash is paid (the same accrual accounting principle). Mr. Candely would recognize salary obligations and expenses in the amount of $1,500 in 20X6.

Salary payable represents amounts of future cash payments to employees for work that has already been performed.

Such accruals as salary payable are also called accrued expenses.

Accrued expenses are expenses incurred but not yet paid in cash. When recorded, such expenses are usually shown in the liabilities section of the balance sheet.

The transaction to record the accrued salary is shown as follows:

Illustration 5: Effect of recognizing liability and expense

	Assets			=	Liabilities	+	Equity
	Cash	+	Accounts Receivable	=	Salaries Payable	+	Contributed Capital	+	Retained Earnings
Beginning Balances	$5,500	+	$800	=	$      0	+	$3,500	+	$2,800
Recognizing Liability / Expense					+1,500				(1,500)
Ending Balances	$5,500	+	$800	=	$1,500	+	$3,500	+	$1,300

Liabilities increase (Salaries Payable) and equity decreases (Retained Earnings) by $1,500. However, total claims remain unchanged. This expense recognition is a claim exchange transaction.

Claim exchange transactions occur when only claim accounts are engaged and impacted. For example, recording salaries payable is an example of a claim exchange transaction.

2.5. Cash payment on salary payable transaction analysis

5) Cash payment to creditors (an employee, in our example) is an asset use transaction. When the employee is paid, both Cash (asset account) and Salaries Payable (liability account) decrease by $1,000:

Illustration 6: Effect of cash payment

	Assets			=	Liabilities	+	Equity
	Cash	+	Accounts Receivable	=	Salaries Payable	+	Contributed Capital	+	Retained Earnings
Beginning Balances	$5,500	+	$800	=	$1,500	+	$3,500	+	$1,300
Cash Payment	(1,000)				(1,000)
Ending Balances	$4,500	+	$800	=	$500	+	$3,500	+	$1,300

Again, note that the cash payment does not cause expense recognition. The expense was already recognized in full when we recorded the salary liability. Doubling of the expenses would take place if we recorded the expense again.

Finally, the summary of all transactions is presented below. If you would like to check whether your understanding of these transactions is correct, try to perform their reverse identification. That means you look at the accounts and identify the type (nature) of the transaction without looking at its description.

Illustration 7: Summary of transactions for Candely Services for 20X6

	Assets			=	Liabilities	+	Equity
	Cash	+	Accounts Receivable	=	Salaries Payable	+	Contributed Capital	+	Retained Earnings
Beginning Balances	$   0		$      0	=	$      0		$      0		$      0
1) Capital Acquisition	+ 3,500						+ 3,500
2) Recognizing Assets/Revenue			+2,800						+2,800
3) Cash Collection	+ 2,000		(2,000)
4) Recognizing Liability Expense					+1,500				(1,500)
5) Cash Payment	(1,000)				(1,000)
Ending Balances	$4,500	+	$800	=	$500	+	$3,500	+	$1,300

2.6. Financial statements for the first illustration of accrual accounting

The next step is to prepare financial statements.

The income statement looks as follows:

Illustration 8: Income statement for Candely Services for 20X6

Candely Services Income Statement For the Period Ended 20X6
Consulting Revenue	$ 2,800
Salary Expenses	(1,500)
Net Income	1,300

The income statement shows changes in equity from all sources other than transactions with owners. Equity is the difference between assets and liabilities, so changes in assets and liabilities other than transactions with owners, represent revenues or expenses. In our example, the increase in assets (i.e., the Account Receivable account) from consulting services was $2,800; the increase in liabilities (i.e., the Salaries Payable account) was $1,500. Therefore, the net assets increase was $1,300 ($2,800 - $1,500).

There is one important point to be remembered. Previously we defined expenses as economic sacrifices from a decrease in assets. Now, from the income statement we can see that expenses can also be recorded with an increase in liabilities. Accordingly:

Expenses can be defined as a decrease in assets or an increase in liabilities that result from operating activities undertaken to generate revenue.

Similarly, revenue can increase by decreasing liabilities.

Revenue is an increase in assets or a decrease in liabilities resulting from the operating activities of an entity.

The statement of changes in equity is presented below:

Illustration 9: Statement of changes in equity for Candely Services for 20X6

Candely Services Statement of Changes in Equity Period Ended 20X6
Beginning Contributed Capital	$0
Plus: Capital Acquisition	3,500
Ending Contributed Capital	3,500
Beginning Retained Earnings	$0
Plus: Net Income	1,300
Less: Distribution	0
Ending Retained Earnings	1,300
Total Equity	4,800

The statement of changes in equity provides us with information about the effects of capital acquisitions and distributions (i.e., transactions with owners). In our example, the capital acquisition was $3,500. The statement also provides information about the net income which amounted to $1,300. No distributions to owners took place during 20X6 accounting period. The total equity, therein, is $4,800.

The balance sheet has such a form:

Illustration 10: Balance sheet for Candely Services at 20X6 end

Candely Services Balance Sheet Period Ended 20X6
Assets
Cash	$ 4,500
Accounts Receivable	800
Total Assets	5,300
Liabilities
Salaries Payable	500
Total Liabilities	500
Equity
Contributed Capital	3,500
Retained Earnings	1,300
Total Equity	4,800
Total Liability and Equity (Claims)	5,300

The balance sheet provides information about the entity's assets, liabilities, and equity. In our example we have assets: cash in the amount of $4,500, and accounts receivable of $800; liabilities only include salaries payable amounting to $500; and, finally, equity consisting of contributed capital of $3,500 and retained earnings with a $1,300 balance.

The statement of cash flows follows:

Illustration 11: Statement of cash flows for Candely Services for 20X6

Candely ServicesStatement of Cash FlowsFor the Period Ended 20X6
Cash Flows from Operating Activities
Cash Receipts from Customers	$ 2,000
Cash Payments for Expenses	(1,000)
Net Cash Flow from Operating Activities	1,000
Cash Flows from Investing Activities	0
Cash Flows from Financing Activities
Cash Receipts from Borrowing	0
Cash Receipts from Capital Acquisitions	3,500
Cash Payments for Distributions	0
Net Cash Flow from Financing Activities	3,500
Net Increase in Cash	4,500
Plus: Beginning Cash Balance	0
Ending Cash Balance	$ 4,500

The statement of cash flows explains the movements (inflows and outflows) of cash during an accounting period. Candely Services was established in 20X6. Therefore, the beginning cash balance is zero. Due the cash received for consulting services, the cash account balance increased by $2,000. In the same period $1,000 was spent on operating the business (salary expense). This creates the net cash flow from operating activities of $1,000 ($2,000 - $1,000). In addition, the capital acquisition contributed $3,500 to the cash inflow (financing activities). The combination of these factors explains the $4,500 ($1,000 + $3,500) increase in cash during the 20X6 accounting period.

Observe that the amount of net income ($1,300) reported on the income statement is different from the amount of net cash flows from operations ($1,000) as well as from net change in cash ($4,500). This takes place because of the accrual accounting. Under the accrual accounting, as we stated earlier, cash flows do not go side-by-side with the recognition of revenue and expense.

3. Second illustration of accrual accounting

Let us expand the example with Candely Services to the next accounting period. We will introduce a few more transactions that apply to 20X7. The transactions are listed below:

1. During 20X7 revenue of $2,700 was recognized on account.
2. $3,000 of accounts receivable was collected in cash from customers.
3. Salary expense of $1,400 was incurred.
4. $1,200 cash was paid to settle salaries payable.
5. $500 cash was distributed to the owner.
6. On May 1, 20X7 Mr. Candely's business invested into a $1,000 certificate of deposit (CD). The CD carries a 6% annual interest and 1-year maturity term.
7. On December 31, 20X7 the company adjusted the books to recognize interest revenue earned on the CD.

The table below summaries the effects of the 20X7 transactions on the accounting equation.

3.1. Summary of transactions for the second illustration of accrual accounting

Illustration 2-12: Effects of transactions for Candely Services for 20X7

	Assets							=	Liab.	+	Equity
#	Cash	+	Accounts Receivable	+	% Rec.	+	CD	=	Salaries Payable	+	Cont. Capital	+	Retained Earnings
BB	$4,500		$800		$     0		$     0	=	$500		$3,500		$1,300
1)			+ 2,700										+ 2,700
2)	+ 3,000		(3,000)
3)									1,400				(1,400)
4)	(1,200)								(1,200)
5)	(500)												(500)
6)	(1,000)						+1,000
7)					40								40
EB	$4,800	+	$500	+	$40	+	$1,000	=	$700	+	$3,500	+	$2,140

The first five transactions are familiar to us (see explanations of 20X6 transactions earlier), so we will go straight to Event No. 6 and No. 7.

3.2. Purchase of certificate of deposit transaction analysis

The purchase of a certificate of deposit represents aninvestment. The event acts to decrease the Cash account and to increase the Certificate of Deposit (CD) account. As both accounts involved in the transaction are asset accounts, it is an asset exchange transaction.

When Mr. Candely invested into the CD, he effectively loaned money to the bank. In return for using his money, the bank agreed to pay back an amount greater than the amount borrowed.

The amount initially invested (or borrowed) is called the principal.

Excess of money over the initial invested amount (principal) is called interest and is usually set as a percentage to the principal.

In our situation, the interest on the CD is 6%. That means that on April 30, 20X8 Mr. Candely will get back the principal ($1,000) and the interest in the amount of $60 ($1,000 x 6%), or $1,060 in total.

It is important to note that the interest is earned on a continuous basis even though the payment of investment return is made at the maturity date. In other words, the amount of interest due increases proportionally with the passage of time. When a portion of interest is earned, the Interest Receivable account (i.e., amount due from the bank) increases along with an increase in the Interest Revenue account.

Interest receivable represents future cash receipts of interest by a company. Interest receivable is shown on the asset side of the balance sheet.

Interest revenue is the amount of interest earned. Interest revenue (or just interest) may be earned on an investment such as a savings account or a certificate of deposit. Interest revenue is an income statement account that increases equity.

Later, at the certificate of deposit maturity date, the bank will pay interest to the creditor and the creditor (our company) will decrease the Interest Receivable account and increase the Cash account.

We do not recognize interest revenue until the date of financial statements on December 31, 20X7. At that time, a single entry can be made to recognize the accrual of 8 months of interest (from May 1 to December 31). This entry is called an adjusting entry.

Adjusting entries adjust the account balances before the final financial statements are prepared. Each adjusting entry affects one balance sheet account and one income statement account.

The amount of interest to be recognized at period end represents accrued revenue.

Accrued revenue is revenue earned but not yet received. When recorded, such amounts are usually shown as account receivable (i.e., interest receivable) on the balance sheet and interest revenue in the income statement.