Magadjust Tayo Store is completing the accounting process for the year just ended December 31, 200B. The transactions in 200B have been journalized and posted. The following data with respect to adjusting entries were available: Delivery equipment that cost P294,000 was being used by the store. The equipment was estimated to have a useful life of five years and a residual value of P6,000 at the end of four years. The equipment was acquired on June 30, 200B. The asset will be depreciated evenly over its useful life On July 1, 200B, a two year insurance premium amounting to P30,000 was paid in cash and debited in full to Prepaid Insurance. Coverage began on August 1, 200B. Magadjust Tayo operates a repair shop to meet its own needs. Also, the shop does repairs for Isip Mabuti. At the end of December 31, 200B, Isip Mabuti did not pay for repairs completed amounting to P7,500. This amount has not been recorded as Repairs Shop Revenue. Collection is expected on January 200C
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.
Magadjust Tayo Store is completing the accounting process for the year just ended December 31, 200B. The transactions in 200B have been journalized and posted. The following data with respect to
- Delivery equipment that cost P294,000 was being used by the store. The equipment was estimated to have a useful life of five years and a residual value of P6,000 at the end of four years. The equipment was acquired on June 30, 200B. The asset will be depreciated evenly over its useful life
- On July 1, 200B, a two year insurance premium amounting to P30,000 was paid in cash and debited in full to Prepaid Insurance. Coverage began on August 1, 200B.
- Magadjust Tayo operates a repair shop to meet its own needs. Also, the shop does repairs for Isip Mabuti. At the end of December 31, 200B, Isip Mabuti did not pay for repairs completed amounting to P7,500. This amount has not been recorded as Repairs Shop Revenue. Collection is expected on January 200C
Required: Prepare necessary adjusting entries as of December 31, 200B
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