Red Apple Naturopathic ClinicIncome StatementFor the year ended December 31, 20x1

Revenue from patient services240,000

Revenue from supplement sales30,000

Total revenue270,000

Less expenses

Reception staff24,000

Cost of goods sold (supplements)25,000

Supplies3,000

Rent36,000

Utilities (heat, light and business taxes)9,600

Amortization of leasehold improvements20,000

Total expenses117,600

Net profit before drawings and taxes152,400

Less taxes (assume 40%)60,960

Less Owners drawings (assume 6,000/mo.)72,000

Retained earnings (profit left in the business)19,440

Red Apple Naturopathic ClinicBalance SheetAs of December 31, 20x1Current assetsCurrent liabilities

Cash13,120Accounts payable3,000

Accounts receivable4,320Current portion -bank loan10,000

Inventory25,000

Total current assets42,440

Long term liabilities

Long term assetsBank loan40,000

Leasehold improvements100,000

Less accumulated amortization(20,000)Owners equity

Net leasehold improvements80,000Owners investment50,000

Retained earnings19,440

122,440122,440

Amortization ExplainedRed Apple Clinic has two sources of revenue, from its patients and sales of supplements. These total a respectable $270,000 for last year. Obviously the clinic owner doesnt get to keep all of this, for there are a number of expenses to be paid. Most of them like staff and rent which are paid in cash are pretty obvious. An example of a journal entry in this case would be:DateDescriptionDebitCredit

Mar. 15, 20x1Salary Expense1,000

Cash1,000

Paid salary to receptionist for 2 weeks

There is a special expenseAmortization of leasehold improvementswhich needs some explanation.The clinic spent at the beginning of the year, 100,000 on leasehold improvements. We will assume that the clinic borrowed half of this money and that the owner put in the other half from savings. Because these improvements will last more than one year, this expenditure will be recorded as an asset. The journal entry will look like this:DateDescriptionDebitCredit

January 2, 20x1Leasehold improvements100,000

Owners investment50,000

Bank loan50,000

Leasehold improvements on rental property

At the end of the year some of these improvements will be used up so in order to match revenues and expenses to the same time period we will write off some of this asset bydepreciatingit oramortizingit. (Accountants like to use lots of fancy terms.)The journal entry will be:DateDescriptionDebitCredit

Dec. 31, 20x1Amortization of leasehold improvements20,000

Leasehold improvements20,000

Expensed 20% of leasehold improvements on rental property