Assignment 2 The following trial balance was extracted from the books of Gilber Ltd, a manufacturing and trading company, on 31 December 2020 (all the figures are in sh '000'). Sh 000 Sh 000 Ordinary Share Capital of sh 10 each 10% preference share capital sh 25 each Opening stock of raw materials Opening stock of work in progress Carriage inward of raw materials Share premiums Purchases of raw material 13,000 12,000 1,778 1,360 394 1,296 27,094 Sales 42,976 Retained profit balance at 14 Jan 2020 1,172 Return inward 144 Factory building Plant and machinery Office furniture and equipment Delivery van Bad debts written off Direct wages (factory) Administrative expenses Opening stock of finished goods Factory overheads Accounts receivables and payable 10,000 7,500 4,500 2,000 162 6,785 1,992 9,876 191 12,000 7,322 Cash in hand and at bank 276 10% Corporate Bonds 7,200 Rent income 2,800 Selling and distribution expenses 710
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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