Consider the following unadjusted trial balance: Dr Cr sales 46,000 inventory (at 31/12/2019) purchases 8,500 28,600 5,600 5,300 35,000 wages trade receivables PPE at cost accumulated depreciation (at 31/12/2019) share capital retained profits 12,000 18,000 2,000 12,000 bank loan cash rent expenses prepaid rent (at 31/12/2019) trade payables 3,000 5,600 1,200 4,100 interest 1,300 And the following additional information: PPE is depreciated using the straight line method, with 15 years useful life and a resale value of £ 5000. Rent expenses includes £ 2600 paid towards rent in 2020. The company needs to take a doubtful debt provision for £ 2000. At 31/12/2020, inventory was valued at £ 15100 During the year The company has consumed but not paid for 2500 in electricity
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.
a) Prepare the adjusted
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b) Use the adjusted trial balance to prepare the income statement for 2020.
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c) Use the adjusted trial balance to prepare the balance sheet for 2020.
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