Melody Mouse Trial Balance as at 31 May 2021 Dr. Cr. $ Purchases 145,870 2,350 Returns in Returns out 2,175 374,860 72,960 Sales Accounts payables Accounts receivables 84,720 54,780 Bank Capital Carriage in Discounts allowed 110,005 6,540 2,580 Discounts received 3,210 Drawings Rent 45,210 39,540 10,270 165,800 254,600 Insurance Furniture and fittings Motor Vehicles Allowance for depreciation - Furniture and fittings Allowance for depreciation - Motor Vehicles 74,520 125,900 Provision for doubtful debts 940 Opening Inventory Loan 35,480 110,400 Telephone Water rates 14,870 12,360 874,970 874,970 The following items should be taken into consideration: i) Closing Inventory at 31 May 2021 was $41,050 i) An amount of $1,950 was prepaid for insurance. This has not yet been accounted for. ii) A water expense accrual of $850 has not yet been accounted for. iv) Depreciation for the year should be applied at the following rates: Furniture and fittings Motor Vehicles 15% Reducing Balance Straight Line 20% Required: a) Prepare the Income Statement for the year ended 31 May 2021 b) Prepare the Balance Sheet as at 31 May 2021
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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