Gawucho Furniture Manufacturing Company (Gawucho) commenced business on 1st January, 2019, preparing account to 31st December each year. The accountant of the business has provided you with the below information. Assets Note Original Cost (GH¢) Furniture 1 424,000 Plywood 2 130,000 Motor Vehicle 3 350,000 Plant and Machinery 4 100,000 Additional Information's 1. The Furniture was produced on 1st March, 2019 for sales but Gawucho used GH¢ 20,000 of these Furniture in its Administration offices. No sales was made during the year. 2. Plywood was purchased on 1st January, 2019 for the production of the furniture. 3. Motor Vehicle was acquired on 1st January, 2019 to convey furniture to customers’ destination only. 4. Plant and machinery was bought on 1st October, 2019 for production of furniture. 5. The business depreciates its asset at the rate of 20% on straight line method on one month ownership basis. 6. All the above assets existed as of 31st December, 2019. Required a. Draft an extract showing how the above transactions should be presented in the financial statements of Gawucho Furniture Manufacturing Company at the end of 2019 year. b. Provide notes to support your presentation
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.
Gawucho Furniture Manufacturing Company (Gawucho) commenced business on 1st January, 2019, preparing account to 31st December each year. The accountant of the business has provided you with the below information.
Assets Note Original Cost (GH¢)
Furniture 1 424,000
Plywood 2 130,000
Motor Vehicle 3 350,000
Plant and Machinery 4 100,000
Additional Information's
1. The Furniture was produced on 1st March, 2019 for sales but Gawucho used GH¢ 20,000 of these Furniture in its Administration offices. No sales was made during the year.
2. Plywood was purchased on 1st January, 2019 for the production of the furniture.
3. Motor Vehicle was acquired on 1st January, 2019 to convey furniture to customers’ destination only.
4. Plant and machinery was bought on 1st October, 2019 for production of furniture.
5. The business
6. All the above assets existed as of 31st December, 2019.
Required
a. Draft an extract showing how the above transactions should be presented in the financial statements of Gawucho Furniture Manufacturing Company at the end of 2019 year.
b. Provide notes to support your presentation
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