Francine's Fast Deliveries, Inc. (FFD) was organized in December of 2011. It had limited activity in 2011. The resulting balance sheet at the beginning of 2012 is provided below: Assets: Cash Accounts Receivable Supplies Total Assets Francine's Fast Deliveries, Inc. Balance Sheet at January 1, 2012 Liabilities: Accounts Payable Stockholders' Equity: Common Stock Retained Earnings $4,650 Total Liabilities & Stk. Equity $4,650 $ 2,150 1,350 1,150 January Transactions for Francine's Fast Deliveries, Inc. (FFD) 7 8 9 $ 1,860 $2,000 790 Date 1 Owners invest $35,000 of additional cash in the business. 2a Supplies are purchased for $1,450 on account. 2b Insurance is paid for 12 months beginning January 1: $9,120 (Record as an asset) 2c Rent is paid for 3 months beginning in January: $5,250 (Record as an asset) 2d Two employees are hired. Each employee will be paid $2,060 per month 3 FFD borrows $39,000 from 1st State Bank at 6% annual interest. 6 A delivery van is purchased for cash. Including tax the total cost was $69,600. It will be used for 4 years and will be depreciated monthly using straight-line with no salvage value. A full month of depreciation will be charged in January. $945 of the receivables from December's sales are collected. $1,488 of the accounts payable from December are paid. Performed services for customers on account. Mailed invoices totaling $11,800. Services are performed for cash customers: $8,260. 10 16 Wages for the first half of the month are paid on January 16: $2,060. 20 The company receives $4,850 from a customer for an advance order for services to be provided in January and February. 25 Collections from customers on account (see January 9 transaction): $4,720 30a The last 2 weeks wages earned by employees are $1,030 per employee and will be paid on February 3. 30b A $1,310 utility bill for January arrived. It is due on February 15. Additional Information for adjusting entries at January 31: a. Supplies on hand on January 31 total $520. b. The company completed 60% of the deliveries for the customer who paid in advance on January 20. c. Interest is accrued for the bank loan. (Assume a full month for the 1st State Bank loan.) d. Record January depreciation. e. Adjust the prepaid asset (Rent and Insurance) accounts as needed.
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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