Mr. Yiadom decided on 1 July, to invest his insurance compensation of GHȼ 4,000,000 in a retail business to buy and sell second hand shovels. The following transactions took place from that month to December. Date Purchases Quantity Cost Date Sales Quantity Value July5 200 720,000 Aug 2 500 2,500,000 Aug 1 400 1,520,000 Sept 3 600 2,400,000 Oct 4 400 1,400,000 Oct 12 600 2,700,000 Dec 7 500 1,400,000 Dec 12 400 1,500,000 Required Calculate the cost of shovels issued during the period and the cost of shovels on hand on 31/12 using the following methods of pricing 1. Calculate and discuss the effect, each of the pricing methods will have on the reported profit of the business 2Examine critically the performance of the business during the period.
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.
Mr. Yiadom decided on 1 July, to invest his insurance compensation of GHȼ 4,000,000 in a retail business to buy and sell second hand shovels. The following transactions took place from that month to December.
Date Purchases Quantity Cost Date Sales Quantity Value
July5 200 720,000 Aug 2 500 2,500,000
Aug 1 400 1,520,000
Sept 3 600 2,400,000
Oct 4 400 1,400,000 Oct 12 600 2,700,000
Dec 7 500 1,400,000 Dec 12 400 1,500,000
Required
Calculate the cost of shovels issued during the period and the cost of shovels on hand on 31/12 using the following methods of pricing
1. Calculate and discuss the effect, each of the pricing methods will have on the reported profit of the business
2Examine critically the performance of the business during the period.
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