ABC Traders Trial Balance at 31 December 20.1 Dr. Cr. Purchases/Sales 843,800 1,394,200 Return in and Out 22,200 33,300 Discounts Allowed and Received 4,400 5,500 Debtors and Creditors 66,000 77,000 Drawing and Capital 136,700 410,000 Stock 1 January 20.1 55,500 Carriage on Sales 21,000 Carriage on Purchases 34,500 Wages and Salaries 78,900 Rates and Insurance 12,300 Telephone and Postage 11,100 Electricity and Water 6,500 Furniture and Fittings 48,000 Loose Tools 7,500 Cars and Lorries 145,000 Land and Buildings 500,000 Bad debts Written off 6,600 Rent income 28,200 Commission 30,100 Provision for Bad debts 1,700 Provision for Depreciation on Furniture/Fittings 6,000 Provision for Depreciation on Cars and Lorries 14,000 2,000,000 2,000,000 Additional information Adjust provisions for bad debts to 2% of debtors. Provide 20% depreciation on the book value of cars and lorries, and 15% on the cost of furniture and fittings. Revalue loose tools at Shs.5, 800. Accrued salaries Shs.4, 100, Telephone Shs.1, 250 and Rates Shs.850. Prepaid insurance, Shs.1, 100, unused postage stamps. Shs.100. Rent received in advance, Shs.2, 800. Commission accrued, Shs.3, 900. Stock on 31 December 20.1, Shs.48, 900. Getting started: Identify the incomes and expenses from the trial balance Read through the additional information to identify the adjustments needed Compile the income statement Identify the assets and the liabilities then compile the statement of financial position.
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.
ABC Traders
|
Dr. Cr. |
|
Purchases/Sales 843,800 1,394,200 |
|
Return in and Out 22,200 33,300 |
|
Discounts Allowed and Received 4,400 5,500 |
|
Debtors and Creditors 66,000 77,000 |
|
Drawing and Capital 136,700 410,000 |
|
Stock 1 January 20.1 55,500 |
|
Carriage on Sales 21,000 |
|
Carriage on Purchases 34,500 |
|
Wages and Salaries 78,900 |
|
Rates and Insurance 12,300 |
|
Telephone and Postage 11,100 |
|
Electricity and Water 6,500 |
|
Furniture and Fittings 48,000 |
|
Loose Tools 7,500 |
|
Cars and Lorries 145,000 |
|
Land and Buildings 500,000 |
|
|
|
Rent income 28,200 |
|
Commission 30,100 |
|
Provision for Bad debts 1,700 |
|
Provision for |
|
Provision for Depreciation on Cars and Lorries 14,000 |
|
2,000,000 2,000,000 |
Additional information
- Adjust provisions for bad debts to 2% of debtors.
- Provide 20% depreciation on the book value of cars and lorries, and 15% on the cost of furniture and fittings. Revalue loose tools at Shs.5, 800.
- Accrued salaries Shs.4, 100, Telephone Shs.1, 250 and Rates Shs.850.
- Prepaid insurance, Shs.1, 100, unused postage stamps. Shs.100.
- Rent received in advance, Shs.2, 800.
- Commission accrued, Shs.3, 900.
- Stock on 31 December 20.1, Shs.48, 900.
Getting started:
- Identify the incomes and expenses from the trial balance
- Read through the additional information to identify the adjustments needed
- Compile the income statement
- Identify the assets and the liabilities then compile the statement of financial position.
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