**Errors in Financial Records** 1. **Cash Account Discrepancy:** - Cash is understated by $1,300. 2. **Misposting in Accounts Receivable:** - A $4,900 debit to Accounts Receivable was erroneously posted as a credit. 3. **Unrecorded Office Supplies Purchase:** - A $1,300 purchase of office supplies on account was neither journalized nor posted. 4. **Equipment Ledger Transfer Error:** - Equipment was incorrectly transferred from the ledger as $88,000. It should have been transferred as $80,500. 5. **Salaries Expense Mistake:** - Salaries Expense is overstated by $300. 6. **Unposted Advertising Expense Payment:** - A $400 cash payment for advertising expense was neither journalized nor posted. **Trial Balance as of August 31, 2024** The trial balance is an essential financial statement that summarizes the balances of all ledger accounts. It is crucial for ensuring that the total debits equal the total credits, which helps verify the accuracy of bookkeeping. | **Account Title** | **Debit** | **Credit** | |----------------------------|-------------|-------------| | Cash | $8,420 | | | Accounts Receivable | $5,000 | | | Office Supplies | $1,200 | | | Prepaid Insurance | $1,400 | | | Equipment | $88,000 | | | Accounts Payable | | $2,600 | | Notes Payable | | $47,000 | | Tarrago, Capital | | $52,300 | | Tarrago, Withdrawals | $3,880 | | | Service Revenue | | $11,800 | | Salaries Expense | $3,800 | | | Rent Expense | $1,100 | | | **Total** | **$112,800**| **$113,700**| **Explanation:** - The trial balance lists all the accounts and their balances as of a specific date, ensuring that debits equal credits. - **Assets** are shown as debits and include Cash, Accounts Receivable, Office Supplies, Prepaid Insurance, and Equipment. - **Liabilities** and **Equity** are shown as credits and include Accounts Payable, Notes Payable, and Tarrago, Capital. - **Expenses** and **Withdrawals** are typically debits, covering items like Salaries Expense and Rent Expense. - **Revenues** are credits and include Service Revenue. This trial balance shows a discrepancy where total debits ($112,800) do not equal total credits ($113,700), indicating an imbalance that needs to be resolved to ensure accurate financial statements.
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.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
