E1-18 00 Using the accounting equation to analyze business transactions [5-10 min] Great City Builders balance sheet data at May 31, 2012, and June 30, 2012, follow: June 30, 2012 $213,000 May 31, 2012 Total assets $177,000 Total liabilities 122,000 144,000 Requirement 1. Following are three situations about owner's investments and drawings of the business during June. For each situation, compute the amount of net income or net loss during June 2012. a. The owner invested $6,000 in the business and made no withdrawals. b. The owner made no investments. The owner withdrew cash $10,000. c. The company owner made investments of $18,000 and withdrew cash of $20,000.
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.
![Q4.
E1-18 00 Using the accounting equation to analyze business transactions
[5-10 min]
Great City Builders balance sheet data at May 31, 2012, and June 30, 2012, follow:
May 31, 2012
June 30, 2012
Total assets
$177,000
$213,000
Total liabilities
122,000
144,000
Requirement
1. Following are three situations about owner's investments and drawings of the
business during June. For each situation, compute the amount of net income or
net loss during June 2012.
a. The owner invested $6,000 in the business and made no withdrawals.
b. The owner made no investments. The owner withdrew cash $10,000.
c. The company owner made investments of $18,000 and withdrew cash of $20,000.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb54ef5bc-019c-4361-94ad-2836f815a548%2F14fa7bf4-133a-48b4-8e80-9e91d1a9a118%2Fjmu3sdq_processed.jpeg&w=3840&q=75)
![Q5.
000 Using the accounting equation, preparing financial statements, and
evaluating business performance [30-40 min]
Compute the missing amount for Felix Company. You will need to work through
total owner's equity.
E1-25
Owner's Equity:
Beginning:
Assets ....
Liabilities
Ending:
$45,000
Owner investments .
29,000
Owner drawings ...
19,000
Income Statement:
Assets ....
$55,000
Revenues
$242,000
Liabilities.
38,000
Expenses
Requirements
1. Did Felix earn a net income or suffer a net loss for the year? Compute the amount.
2. Would you consider Felix's performance for the year to be good or bad? Give
your reason.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb54ef5bc-019c-4361-94ad-2836f815a548%2F14fa7bf4-133a-48b4-8e80-9e91d1a9a118%2Fic96nes_processed.jpeg&w=3840&q=75)
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