During the course of your examination of the financial statements of Trojan Corporation for the year ended December 31, 2024, you come across several items needing further consideration. Currently, net income is $97,000. 1. An insurance policy covering 12 months was purchased on October 1, 2024, for $22,200. The entire amount was debited to Prepaid Insurance and no adjusting entry was made for this item in 2024. 2. During 2024, the company received a $3,700 cash advance from a customer for services to be performed in 2025. The $3,700 was incorrectly credited to Service Revenue. 3. Purchases of supplies during the year were incorrectly recorded to Supplies Expense. You discover that supplies costing $2,600 were on hand at December 31, 2024. 4. Trojan borrowed $67,000 from a local bank on September 1, 2024. Principal and interest at 9% will be paid on August 31, 2025. No accrual was made for interest in 2024. Required: Using the information in 1 through 4 above, determine the proper amount of net income as of December 31, 2024. (Do not round intermediate calculations. Amounts to be deducted should be indicated with a minus sign.) Net income (unadjusted) 1. Adjustment for insurance 2. Adjustment for deferred revenue 3. Adjustment for supplies 4. Adjustment for interest Net income (adjusted) $ 97,000
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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