James Dalton prepared draft accounts for his business for the year ended 31.12.20. According to the draft accounts, his profit for the year amounted to €23,000. The following mistakes have now been discovered. (1) An item purchased at the beginning of the year for €1,800 had been charged to revenue instead of being capitalised and depreciated at the rate of 10% per annum. (2) No record had been made of goods costing €200 which had been withdrawn by Mr Dalton for his own use. (3) Goods sold for €300 had been returned and included in the closing stock at their cost of €240. The value of the goods was nil. No entries had been made in the books to record their return by the customer. (4) A cheque for €100 was issued to a supplier but no entry had been made in the books to record the transaction. (5) On 31 December a second hand delivery van was purchased at a price of €2,800. This van was intended to replace an old one which had a written down value of €800 at that date. The new van was paid for by trading in the old van and paying €1,300 cash. The only entry made to record this transaction was to debit the vans account and credit the bank account with €1,300. (6) The closing inventory sheets showed 1,000 items priced at €10 each instead of €10 per hundred. (7) Goods costing €600, invoiced on a sale or return basis for €900 had been treated as definite sales, although the sale or return period had not expired. (8) Rates paid in advance of €500 had not been taken into account. Requirement: Prepare a statement for James Dalton showing the correct figure for net profit for the year ended 31.12.20.
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.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
