On February 1, Tory began a service proprietorship with an initial cash investment of $2,000. The proprietorship provided $5,000 of services in February and received full payment in March. The proprietorship incurred expenses of $3,000 in February, which were paid in April. During March, Tory drew $1,000 against the capital account. In the proprietorship's financial statements for the two months ended March 31, prepared under the cash basis method of accounting, what amount should be reported as capital

Respuesta :

The amount that should be reported as the capital is $6,000

Calculation of the capital amount:

The following formula should be used.

= Initial cash investment + Investments made + Income received - Drawings

= $2,000 + $0 + $5,000 - $1,000

= $6,000

As per the cash basis accounting method, the cash revenues is more than the cash expenses so the same should be considered as an income

Hence, the amount reported as capital is $6,000.

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