EXERCISES ON ADJUSTED FINANCIAL STATEMENT 1. The following trial balance was extracted from the books of Ranea Limited and Co at the end of business accounting period on 30 June 2018. Purchases and sales Cash at bank Cash in hand Capital account 1 March 2006 Drawings Office furniture Rent Wages and salaries Discounts Accounts receivable and accounts payable Inventory 1 March 2017 Allowance for doubtful debts (1st March 2017) Delivery van Van running costs Bad debts written off Additional information: DR (RM) 92,800 4,100 324 17,100 2,900 3,400 31,400 820 12,316 4,120 3,750 615 730 174,375 CR (RM) 157,165 11,400 160 5,245 (a) Inventory 28 February 2018 RM 2,400. (b) Wages and salaries accrued at 28 February 2018 RM 340. (c) Rent prepaid at 28 February 2018 RM 230. (d) Van running costs owing at 28 February 2018 RM 72. (e) Increase the allowance for doubtful debts by RM 91. 405 174,375 (f) Provide for depreciation as follows: Office furniture RM 380; Delivery van RM 1,250. Required: i. Statement of Comprehensive Income for the year ended 30th June 2018. ii. Statement of Financial Position as at 30th June 2018.
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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