Financial statements are a set of documents that show company's financial status at a specific point in time. You are finance manager of "Amara" Business Corporation and now this is the time to draw financial statement of your company which defines accounting period for one year. The following trial balance was extracted from the books of "Amara" Business at 31 Dec 2021.
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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Assignment Question 1
Financial statements are a set of documents that show company's
financial status at a specific point in time. You are finance
manager of "Amara" Business Corporation and now this is the
time to draw financial statement of your company which defines
accounting period for one year.
The following trial balance was extracted from the books of
"Amara" Business at 31 Dec 2021.
$
Revenue
Purchases
Carriage
Drawings
Rent, rates and insurance
Postage and stationery
Advertising
Salaries and Wages
Irrecoverable debt (Bad debt)
Allowance for bad debts
Trade receivable
Trade payable
Cash in hand
Cash at bank
Capital
82,350
5,144
7,800
6,622
3,001
1,330
26,420
877
177
1,002
Inventory as at 1 January 2021 11,927
Equipment at cost
58,000
Depreciation
12,120
$
138,078
130
6,471
19,000
53,091
216,770 216,770
You are given the following additional information:
(a) Rent is accrued by $210.
(b) Rates have been prepaid by $880.
(c) $2,211 of carriage represent carriage inwards on purchases.
(d) Equipment is to be depreciated at 15% per annum using the straight line method.
(e) The allowance for bad debts to be increased by $40.
(f) Inventory at the close of the business has been valued at $13,551.
67
REQUIRED:
(a) Prepare a statement of profit or loss for the year ended 31
Dec 2021, together with a statement of financial position as
at that date.
(b) Interpret these two financial statements with your own
perception.
(c) Since you are financial manager of Amara Corporation, you
need to explain why the company obtain net profit or net
loss.
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