AUDIT OF INVENTORIES PROBLEM NO. 1 The Pasay Company is a wholesale distributor of automobile replacement parts. Initial amounts taken from Pasay's accounting records are as follows: Inventory at December 31, 2005 (based on physical count on December 31, 2005) 3. Accounts payable at December 31, 2005: Vendor 4. Anito Company Victoria Company Winston Company Sogo Company Rotonda Company Terms Net 30 Net 30 Net 30 Net 30 Net 30 P400,000 Amount P 9,000 Sales in 2005 Additional information follows: 1. Parts held on consignment from Anito to Pasay amounting to P9,000, were included in the physical count of goods in Pasay's warehouse on December 31, 2005, and in accounts payable at December 31, 2005. 36,500 48,000 74,000 P167,500 P5.000.000 2. P15,000 worth of parts which were purchased from Sogo and paid for in December 2005 were sold in the last week of 2005 and appropriately recorded as sales of P21,000. The parts were included in the physical count on December 31, 2005, because the parts were on the loading dock waiting to be picked up by the customer. Parts in transit on December 31, 2005, to customers, shipped FOB destination, December 28, 2005, amounted to P11,000. The customers received the parts on January 6, 2006. Sales of P15,000 to the customers for the parts were recorded by Pasay on January 2, 2006. Retailers were holding P50,000, at cost, of goods on consignment from Pasay, at their stores on December 31, 2005. 5. Goods were in transit from Rotonda to Pasay on December 31, 2005. The cost was P8,000 and these were shipped FOB shipping point on December 29, 2005. REQUIRED: Determine the adjusted balances of Inventory and Accounts Payable as of December 31, 2005 and Sales for the year 2005.
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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