ILLUSTRATION NO. 1 The Trial Balance of a trader as on 31.12.2004 is given below: Debit Credit Rs. Rs. Two sources of information, the Trial Balance and adjustments given outside the Trial Balance. Opening stock 60,000 Bills Payable 10,000 Sundry Debtors 80,000 | Returns outward 2400 Furniture 20,000 Capital 140,000 Plant 100,000 Interest received 1000 Purchases 340,000 Sales 462000 Bills Receivable 22000 Commission received 400 Carriage Inward 2600 Creditors 80,000 Carriage Outward 1800 Insurance paid 1400 Returns Inward 4000 Salaries 24000 Wages 20000 Cash at Bank 18000 Cash in hand 2000 695800 695800 Prepare a Trading and Profit & Loss A/c for the year ended 31.12.2004 and Balance Sheet as at that date after taking into consideration the following 'adjustments,' Closing stock valued at Rs. 1,00,000. Outstanding salaries Rs. 6,000 and outstanding wages Rs. 1,000. Insurance included a sum of Rs. 350 relating to the next year, 2005. 1. 2. 3.
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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