he following trial balance was extracted from the accounts of Blue Ltd as at 31 December 2019. Debit £ Credit £ Bank 25,000 Retained profit as at 1 January 2019 23,080 Cash at hand 3,500 Ordinary issued share capital 30000 Insurance 2,000 Directors Remuneration 17,580 5% loan notes 2032-2032 10000 Sales return outwards 3,500 Return inwards 3,000 Interim Dividend paid 8,500 Loan Interest Paid 500 Sundry expenses 3000 Carriage Inwards 2,500 Repairs and renewals 1200 Motor vehicles 15,000 carriage outwards 750 Accumulated depreciation on motor vehicles 2,850 Office Equipment at cost 20,000 Office Equipment: accumulated depreciation 8000 Allowance for trade receivables 1,000 Purchases 50,000 Salaries 18,750 Sales 120,000 Inventory at 1st January 2019 19,000 Trade payables 19,550 Trade receivables 25,000 Utilities 1800 Printing & stationery 900 217,980 217,980 Notes: The following additional information is available: Inventory as at 31 December 2019 was valued at £25,000. Insurance included £350 which related to the year 2020. Blue Ltd will like to transfer £10,000 from retain profit to its general reserve Depreciation is charged on office furniture at 20% per annum of its original cost and on motor vehicles at a rate of 10% per annum using reducing balance method. Accruals need to be made as follows: Electricity £650 and salaries £2,000. Blue Ltd will like to adjust its provision for doubtful debt to 10% of the receivables as at 31 December 2019 Blue Ltd is advised to make a provision of £4,091 for taxation Required Prepare Blue’s income and expenditure statement as 31 December 2019 Prepare statement of movement of reserves as 31 December 2019 Prepare Blue’s Statement of Financial Position as at 31 December 2019
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.
The following
|
Debit £ |
Credit £ |
||
|
Bank |
25,000 |
|
|
|
Retained profit as at 1 January 2019 |
|
|
23,080 |
|
Cash at hand |
3,500 |
|
|
|
Ordinary issued share capital |
|
|
30000 |
|
Insurance |
2,000 |
|
|
|
Directors Remuneration |
17,580 |
|
|
|
5% loan notes 2032-2032 |
|
|
10000 |
|
Sales return outwards |
|
|
3,500 |
|
Return inwards |
3,000 |
|
|
|
Interim Dividend paid |
8,500 |
|
|
|
Loan Interest Paid |
500 |
|
|
|
Sundry expenses |
3000 |
|
|
|
Carriage Inwards |
2,500 |
|
|
|
Repairs and renewals |
1200 |
|
|
|
Motor vehicles |
15,000 |
|
|
|
carriage outwards |
750 |
|
|
|
|
|
|
2,850 |
|
Office Equipment at cost |
20,000 |
|
|
|
Office Equipment: accumulated depreciation |
|
|
8000 |
|
Allowance for trade receivables |
|
|
1,000 |
|
Purchases |
50,000 |
|
|
|
Salaries |
18,750 |
|
|
|
Sales |
|
|
120,000 |
|
Inventory at 1st January 2019 |
19,000 |
|
|
|
Trade payables |
|
|
19,550 |
|
Trade receivables |
25,000 |
|
|
|
Utilities |
1800 |
|
|
|
Printing & stationery |
900 |
|
|
|
|
|
|
|
|
|
217,980 |
|
217,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
The following additional information is available:
- Inventory as at 31 December 2019 was valued at £25,000.
- Insurance included £350 which related to the year 2020.
- Blue Ltd will like to transfer £10,000 from retain profit to its general reserve
- Depreciation is charged on office furniture at 20% per annum of its original cost and on motor vehicles at a rate of 10% per annum using
reducing balance method .
- Accruals need to be made as follows: Electricity £650 and salaries £2,000.
- Blue Ltd will like to adjust its provision for doubtful debt to 10% of the receivables as at 31 December 2019
- Blue Ltd is advised to make a provision of £4,091 for
taxation
Required
- Prepare Blue’s income and expenditure statement as 31 December 2019
- Prepare statement of movement of reserves as 31 December 2019
- Prepare Blue’s
Statement of Financial Position as at 31 December 2019
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