At the beginning of 2018, the Redd Company had the following balances in its accounts: Cash Inventory Common stock Retained earnings $7,700 1,700 7,200 2,200 During 2018, the company experienced the following events: 1. Purchased inventory that cost $5,200 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $470 were paid in cash. 2. Returned $400 of the inventory that it had purchased because the inventory was damaged in transit. The seller agreed to pay the return freight cost. 3. Paid the amount due on its account payable to Redd Company within the cash discount period. 4. Sold inventory that had cost $5,700 for $8,700 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $470 and was sold to the customer for $770 cash. The customer was paid $770 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $570 were paid in cash. 7. Collected the amount due on the account receivable within the discount period.
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.
![Required information
[The following information applies to the questions displayed below.]
At the beginning of 2018, the Redd Company had the following balances in its accounts:
Cash
Inventory
$7,700
1,700
7,200
2, 200
Common stock
Retained earnings
During 2018, the company experienced the following events:
1. Purchased inventory that cost $5,200 on account from Ross Company under terms 2/10, n/30. The merchandise was
delivered FOB shipping point. Freight costs of $470 were paid in cash.
2. Returned $400 of the inventory that it had purchased because the inventory was damaged in transit. The seller agreed
to pay the return freight cost.
3. Paid the amount due on its account payable to Redd Company within the cash discount period.
4. Sold inventory that had cost $5,700 for $8,700 on account, under terms 2/10, n/45.
5. Received merchandise returned from a customer. The merchandise originally cost $470 and was sold to the customer
for $770 cash. The customer was paid $770 cash for the returned merchandise.
6. Delivered goods FOB destination in Event 4. Freight costs of $570 were paid in cash.
7. Collected the amount due on the account receivable within the discount period.
8. Took a physical count indicating that $1,400 of inventory was on hand at the end of the accounting period.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8151a55-1f97-4293-9574-706e6f6ba5ac%2F0b908c28-b411-4a6e-87a6-92b271a4b348%2Fuocge6j_processed.png&w=3840&q=75)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
