Following are the accounts and balances from the adjusted trial balance of Stark Company. Prepare the (1) income statement and (2) statement of owner’s equity for the year ended December 31 and (3) balance sheet at December 31. The Stark, Capital account balance was $24,800 on December 31 of the prior year. Notes payable. $11,000 Accumulated depreciation—Buildings. $15,000 Prepaid insurance . 2,500 Accounts receivable . 4,000 Interest expense . 500 Utilities expense . 1,300 Accounts payable . 1,500 Interest payable . 100 Wages payable . 400 Unearned revenue . 800 Cash . 10,000 Supplies expense . 200 Wages expense . 7,500 Buildings . 40,000 Insurance expense . 1,800 Stark, Withdrawals . 3,000 Stark, Capital . 24,800 Depreciation expense—Buildings . 2,000 Services revenue . 20,000 Supplies. 800
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.
Following are the accounts and balances from the adjusted
(1) income statement and (2) statement of owner’s equity for the year ended December 31 and
(3)
of the prior year. Notes payable. $11,000
Prepaid insurance . 2,500
Interest expense . 500 Utilities expense . 1,300
Accounts payable . 1,500 Interest payable . 100
Wages payable . 400 Unearned revenue . 800
Cash . 10,000 Supplies expense . 200
Wages expense . 7,500 Buildings . 40,000
Insurance expense . 1,800 Stark, Withdrawals . 3,000
Stark, Capital . 24,800 Depreciation expense—Buildings . 2,000
Services revenue . 20,000 Supplies. 800
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