Following is the trial balance extracted from the books of NICK CHARLES INVESTIGATIONS for the month ended March 31, 2020 : Rs. Rs. Cash........................................................................................ 17,150 Fee Receivable........................................................................ 37,800 Unexpired Insurance................................................................. 1,600 Prepaid Rent............................................................................. 2,400 Office Supplies......................................................................... 1,050 Office Equipment................................................................... 17,100 Accumulated Depreciation : Office Equipment..................................................... 5,700 Accounts Payable................................................................................................... 3,900 Unearned Retainer Fees........................................................................................ 24,000 Nick Charles, Capital............................................................................................ 45,300 Nick Charles, Drawing............................................................. 3,200 Fees Earned.......................................................................................................... 33,320 Depreciation Expense.................................................................. 570 Rent Expense............................................................................ 3,000 Office Supplies Expense.............................................................. 450 Insurance Expense....................................................................... 800 Telephone Expense................................................................... 1,200 Travel Expense.......................................................................... 3,400 Salaries Expense..................................................................... 19,500 Other Data for Adjustments : Provision for Depreciation on Office Equipment is to be recorded on the basis of 5 years estimated life (using straight-line method). Salaries earned by employees during the month but not yet recorded or paid amounted to Rs. 1,665. Investigative services rendered during the month but not yet collected or billed to clients amounted to Rs. 3,900. Services Income of Rs. 8,400 were earned during the month from services performed for clients who had paid in advance. On March 01, the business moved into a new office and paid the first three months’ rent in advance. Required : Using the information given above, prepare An INCOME STATEMENT for the month ended March 31, 2020 . Instead of straight line method, if firm follows diminishing balance method for recording depreciation, how would it effect the net income. Comment.
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 is the
Rs. Rs.
Cash........................................................................................ 17,150
Fee Receivable........................................................................ 37,800
Unexpired Insurance................................................................. 1,600
Prepaid Rent............................................................................. 2,400
Office Supplies......................................................................... 1,050
Office Equipment................................................................... 17,100
Accounts Payable................................................................................................... 3,900
Unearned Retainer Fees........................................................................................ 24,000
Nick Charles, Capital............................................................................................ 45,300
Nick Charles, Drawing............................................................. 3,200
Fees Earned.......................................................................................................... 33,320
Depreciation Expense.................................................................. 570
Rent Expense............................................................................ 3,000
Office Supplies Expense.............................................................. 450
Insurance Expense....................................................................... 800
Telephone Expense................................................................... 1,200
Travel Expense.......................................................................... 3,400
Salaries Expense..................................................................... 19,500
Other Data for Adjustments :
- Provision for Depreciation on Office Equipment is to be recorded on the basis of 5 years estimated life (using straight-line method).
- Salaries earned by employees during the month but not yet recorded or paid amounted to Rs. 1,665.
- Investigative services rendered during the month but not yet collected or billed to clients amounted to Rs. 3,900.
- Services Income of Rs. 8,400 were earned during the month from services performed for clients who had paid in advance.
- On March 01, the business moved into a new office and paid the first three months’ rent in advance.
Required :
Using the information given above, prepare
- An INCOME STATEMENT for the month ended March 31, 2020 .
- Instead of
straight line method , if firm follows diminishing balance method for recording depreciation, how would it effect the net income. Comment.
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