Exercise 8-15: Financial Statements Preparation - II. The following accounts were taken from the adjusted trial balance of Marieil's Beauty Salon, a calendar-year business, as of December 31, 2015 (disregarding effect of income taxes): Accounts Payable Debit Credit Debit Credit Accounts Receivable 54,000 Intarest Income 15,000 Accumulated Depreciation -- Beauty Machines Accumulated Depreciation-Furniture ond 596,000 Interost Receivable 15,000 Fixtures 20,000 Investment Income 3,500 Accumuloted Deprecialion- Office Equipment 10,000 Investmeni in Trading Securities 70,000 Allowance for Doubtful Accounts 6,500 Notes Receivable - due in lwo years 150,000 Mariell, Capital 15,000 Office Equipment 70,000 Moriell, Drawing 2 Office Supplies 8,000 40,000 Salon Revenue 980,000 Beauty Machines 220,000 Rent Expense 144,000 Cash 120,000 Solaries Expensu 312,000 Depreciation Expense 36.500 Salaries Payable 12,000 Doubtful Accounts Expense 15,000 77,500 Unlities Expense Furniture and Fixtures 120,000 Totals P1,494,000 1494,000 Prepare the following: 1. Income Statement-natural form 2. Statement of Changes in Owner's Equity 3. Statement of Financial Position - report form 4 Notes to financial statements
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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