Amelia, a sole proprietor of Amelia Camera Gear, extracted the following balances from the books of the business on 31 January 2020. 5 Trade receivables Mortgage loan Interest on mortgage loan Trade payables Fixtures (a) (b) Accumulated depreciation of fixtures Drawings Rental income Equipment Accumulated depreciation of equipment Sales revenue Salaries Commission income Sales returns Cash at bank Capital, 1 February 2019 Cost of sales Inventory Advertising Discount received REQUIRED $ 44 000 40 000 250 14 000 98 000 18 000 19 000 14 000 100 000 20 000 176 000 32 000 Additional information 1 Rental income earned for the year ended 31 January 2020 amounted to $15 200. 2 Advertising was paid for 16 months till 31 May 2020. 3 Commission of $660 had been received for the month of February 2020. 4 Amelia withdrew $800 cash from the business bank for her own use and this transaction was omitted from the business books. $8 000 of the mortgage loan is to be repaid on 31 July 2020. 18 000 10 000 4 200 Cr 100 250 66 000 17 400 19 600 1 800 Prepare the statement of financial performance for the year ended 31 January 2020. Prepare the statement of financial position at 31 January 2020.
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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