20.11 This question also relates to extended trial balances (see Exhibit 28.2) From the following trial balance of John Brown, store owner, prepare a trading account and profit and loss account for the year ended 31 December 20X7, and a balance sheet as at that date, taking into consideration the adjustments shown below: Trial Balance as at 31 December 20X7 Dr 400,000 Sales Purchases Sales returns Purchases returns 350,000 5,000 6,200 Opening stock at 1 January 20X7 Provision for doubtful debts 100,000 800 30,000 6.000 Wages and salaries Betes Rates Teler Telephone Shop fittings at cost Van at cost Debtors and creditors Bad debts Capital Bank balance 1,000 40,000 30,000 9,800 200 7,000 179,000 3,000 18,000 593,000 Drawings 593,000 ) Closing stock at 31 December 20X7 £120,000. (i) Accrued wages £5,000. (i) Rates prepaid £500. (iv) The provision for doubtful debts to be increased to 10 per cent of debtors. () Telephone account outstanding £220. (vi) Depreciate shop fittings at 10 per cent per annum, and van at 20 per cent per annum, on cost. 28.12A The folowing trial balance has been extracted from the ledger of Mr Yousef, a sole trader. Trial Balance as at 31 May 20x6 Dr Cr 138,078 Sales Purchases Carriage Drawings Rent, rates and insurance Postage and stationery Advertising Salaries and wages 82,350 5,144 7,800 6,622 3,001 1,330 26,420 877 Bad debts 333 Part 4 Adjustments for financial statements Provision for doubtful debts Debtors Creditors Cash in hand Cash at bank Stock as at 1 June 20X5 Equipment at cost accumulated deprediation Capital 130 12,120 6,471 177 1,002 11,927 58,000 19,000 53,091 216,770 216,770 The following additional information as at 31 May 20x6 is available: (a) Rent is accrued by £210. (b) Rates have been prepaid by £880. (O £2,211 of carriage represents carriage inwards on purchases. (d) Equipment is to be depreciated at 15% per annum using the straight line method. (e) The provision for doubtful debts to be increased by £40. () Stock at the dose of business has been valued at £13,551. Required: Prepare a trading and profit and loss account for the year ended 31 May 20x6 and a balance sheet as at that date.
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.
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