Chapter 2 Financial Statements L. Bong Lee, owner of Champion Forwarders, follows the calendar year for reporting the results of his operations. The following adjustments are to be made on December 31 of the current year prior to the preparation of his financial statements. 1. The Supplies Expense in the trial balance showed a balance of P 12,160. On this date, P 3,160 worth of supplies remain unused. 2. The Advertising Expense of P 18,000 reported in the trial balance was paid on November 1 of the current year. The amount represents the advertisement for 3 months in the newspaper. 103. A one year fire insurance was taken on August 1 of the current year in the amount of P 12,000. It was charged to Insurance Expense. 4. A 30-day 6% note for P 2,400 was received from a customer dated December 15 of the current year. 5. Salaries of the employees are paid every 15 days. Unpaid salaries December 31 amounted to P 15,650. 6. The Office Equipment showed a balance of P 164,000 with accumulated depreciation of P 7,000. On July 1, an equipment costing P 24,000 was acquired. The equipment is depreciated at 5% per annum. 7. There is an outstanding 60-day 6% Note Payable amounting to P 14,000 dated December 1. 8. Furniture & fixtures having an estimated useful life of 10 years with no salvage value showed a balance of P 48,000 with accumulated depreciation of P 4,800. 9. A tenant pays his monthly rental of P 3,000 on the 15th of each month. Rent income is credited. 094.207 010. The accounts receivable showed a balance of P 26,000 with Allowance for 002 T Impairment Loss of P 800. It is estimated that 4% of the accounts receivable are uncollectible. 2020 00 11. The office rental is P 24,000 per month payable in advance every 15th day of the month. Rent Expense is debited. 12. P 10,000 of the Service Income reported in the trial balance is still unearned. 13. The Delivery Van acquired 2 years ago costing P 800,000 with accumulated depreciation of P 80,000 is to be depreciated at the rate 5% per annum. 14. The loan with the bank amounting to P 120,000 taken on October 2 of the current year is payable in 6 months with interest at 15% P.A. 15. On December 31, the bank statement showed a service charge of P 125. T has not yet been recorded. REQUIRED: Prepare the adjusting entries
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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