able 285,000 Prepaid rent 8,500 Inventory 42,000 Office equipment 520,000 Accumulated depreciation $ 218,000 Accounts payable 54,000 Notes payable (due in six months) 36,000 Salaries payable 6,700 Interest payable 1,200 Common stock 400,000 Retained earnings 110,000 Sales revenue 670,000 Cost of goods sold 402,000 Salaries expense 100,500 Rent expense 25,500 Depreciation expense 52,000 Interest expense 2,400 Advertising expense 3,400 Totals $ 1,495,900 $ 1,495,900
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.
The December 31, 2024, adjusted
| Account Title | Debits | Credits |
|---|---|---|
| Cash | $ 54,600 | |
| 285,000 | ||
| Prepaid rent | 8,500 | |
| Inventory | 42,000 | |
| Office equipment | 520,000 | |
| $ 218,000 | ||
| Accounts payable | 54,000 | |
| Notes payable (due in six months) | 36,000 | |
| Salaries payable | 6,700 | |
| Interest payable | 1,200 | |
| Common stock | 400,000 | |
| 110,000 | ||
| Sales revenue | 670,000 | |
| Cost of goods sold | 402,000 | |
| Salaries expense | 100,500 | |
| Rent expense | 25,500 | |
| Depreciation expense | 52,000 | |
| Interest expense | 2,400 | |
| Advertising expense | 3,400 | |
| Totals | $ 1,495,900 | $ 1,495,900 |
Required:
1-a. Prepare an income statement for the year ended December 31, 2024.
1-b. Prepare a classified
2. Prepare the necessary closing entries on December 31, 2024.
MAIN SOLUTION:
1-a. Prepare an income statement for the year ended December 31, 2024.
| PARTICULARS | AMOUNT | |
| sales revenue | 670,000 | |
| LESS: | ||
| cost of goods sold | 402000 | |
| salaries expense | 100500 | |
| rent expense | 25500 | |
| depreciation expense | 52000 | |
| interest expense | 2400 | |
| advertising expense | 3400 | 585800 |
| NET INCOME | 84200 |
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