3-a. Prepare Wells Technical Institute's income statement for the year. 3-b. Prepare Wells Technical Institute's statement of retained earnings for the year. The Retained Earnings account balance wa $83,000 on December 31 of the prior year. 3-c. Prepare Wells Technical Institute's balance sheet as of December 31.
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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Wells Technical Institute (WTI) provides training to individuals who pay tuition directly to the school. WTI also offers training
to groups in off-site locations. WTI initially records prepaid expenses and unearned revenues in balance sheet accounts.
Its unadjusted trial balance as of December 31 follows, along with descriptions of items a through h that require adjusting
entries on December 31.
Additional Information Items
a. An analysis of WTI's insurance policies shows that $3,468 of coverage has expired.
b. An inventory count shows that teaching supplies costing $3,006 are available at year-end.
c. Annual depreciation on the equipment is $13,871.
d. Annual depreciation on the professional library is $6,936.
e. On September 1, WTI agreed to do five training courses for a client for $2,600 each. Two courses will start immediately
and finish before the end of the year. Three courses will not begin until next year. The client paid $13,000 cash in
advance for all five training courses on September 1, and WTI credited Unearned Revenue.
f. On October 15, WTI agreed to teach a four-month class (beginning immediately) for an executive with payment due at
the end of the class. At December 31, $10,548 of the tuition revenue has been earned by WTI.
g. WTI's two employees are paid weekly. As of the end of the year, two days' salaries have accrued at the rate of $100 per
day for each employee.
h. The balance in the Prepaid Rent account represents rent for December.
Cash
Accounts receivable
WELLS TECHNICAL INSTITUTE
Unadjusted Trial Balance
December 31
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Debit
$ 27,547
0
S
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