Following is the unadjusted trial balance for Sun Energy Co. on December 31, 2017. Sun Energy Co. Unadjusted Trial Balance Year Ended December 31, 2017 Account Debit Credit Cash $5,000 Accounts Receivable 2,100 Merchandise Inventory 4,500 Buildings 2,400 Equipment 4,200 Accounts Payable $4,700 Salaries Payable 3,500 Common Stock 2,500 Dividends Sales Revenue 14,800 COGS 3,800 Salaries Expense 3,500 Totals $25,500 $25,500 You are also given the following supplemental information: A pending lawsuit, claiming $2,500 in damages, is considered likely to favor the plaintiff and can be reasonably estimated. Sun Energy Co. believes a customer may win a lawsuit for $3,500 in damages, but the outcome is only reasonably possible to occur. Sun Energy calculated warranty expense estimates of $210 C. Sun Energy Co. is the defendant in a pending lawsuit,The plaintiff is claiming $2,500 in damages and is considered likely to win this amount when the case is tried. In addition, Sun Energy Co. believes another customer may win a different lawsuit for $3,500 in damages, but this outcome is only possible, not likely, to occur. Also, Sun Energy Co. has calculated a warranty expense estimate of $210. How much should be included as liabilities and expenses with respect to these items on ABC’s current 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.
Following is the unadjusted
| Sun Energy Co. Unadjusted Trial Balance Year Ended December 31, 2017 |
||
| Account | Debit | Credit |
| Cash | $5,000 | |
| 2,100 | ||
| Merchandise Inventory | 4,500 | |
| Buildings | 2,400 | |
| Equipment | 4,200 | |
| Accounts Payable | $4,700 | |
| Salaries Payable | 3,500 | |
| Common Stock | 2,500 | |
| Dividends | ||
| Sales Revenue | 14,800 | |
| COGS | 3,800 | |
| Salaries Expense | 3,500 | |
| Totals | $25,500 | $25,500 |
You are also given the following supplemental information:
- A pending lawsuit, claiming $2,500 in damages, is considered likely to favor the plaintiff and can be reasonably estimated. Sun Energy Co. believes a customer may win a lawsuit for $3,500 in damages, but the outcome is only reasonably possible to occur. Sun Energy calculated warranty expense estimates of $210
C. Sun Energy Co. is the defendant in a pending lawsuit,The plaintiff is claiming $2,500 in damages and is considered likely to win this amount when the case is tried. In addition, Sun Energy Co. believes another customer may win a different lawsuit for $3,500 in damages, but this outcome is only possible, not likely, to occur. Also, Sun Energy Co. has calculated a warranty expense estimate of $210. How much should be included as liabilities and expenses with respect to these items on ABC’s current financial statements?
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