17.1 Mr Yousef The following trial balance has been extracted from the ledger of Mr Yousef, a sole trader. TRIAL BALANCE AS AT 31 MAY 20x6 Dr $ Cr $ Sales 138,078 Purchases 82,350 5,144 7,800 6,622 3,001 1,330 26,420 877 Carriage Drawings Rent and insurance Postage and stationery Advertising Salaries and wages Irrecoverable debts Allowance for receivables 130 Receivables 12,120 Payables Cash on hand 6,471 177 1,002 11,927 58,000 Cash at bank Inventory as at 1 June 20X5 Equipment at cost Accumulated depreciation Capital 19,000 53,091 216,770 216,770 The following additional information as at 31 May 20X6 is available. Rent is accrued by $210. Insurance has been prepaid by $880. $2,211 of carriage represents carriage inwards on purchases. Equipment is to be depreciated at 15% per annum using the straight-line method. The allowance for receivables is to be increased by $40. Inventory at the close of business has been valued at $13 551 123456
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Prepare a statement of profit or loss for the year ended 31 May 20X6.
Prepare a
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