On 30 June 20X4 the following information was available from the books of Allan Grey, a sole trader. Dr Cr Trade receivables and Trade payables Purchases and Sales Cash at bank 25 000 14 000 222 000 332 000 8 400 Inventory Carriage on purchases 45 500 5 800 Purchases returns 4 300 Rent and rates 24 600 Wages and salaries Insurance (covers period from I July 20X3 to 31 December 20x4) 33 500 3 600 Discounts 800 1900 Motor vehicle expenses 3 600 General expenses 10 600 Bad debts 600 Provision for doubtful debts 1 000 8% loan 10 000 600 Loan interest 25 000 Equipment Provision for depreciation of equipment 5 00 40 000 Motor vehicles Provision for depreciation of motor vehicles 20 400 Capital Drawings 105 000 44 000 493 600 493 600 The following information is also available. (1) The closing inventory as at 30 June 20x4 was valued at $52 000. One sixth of the motor vehicle expenses relate to the running of a motor vehicle privately owned by Allan Grey's wife. No adjustment has yet been made. $200 for bank charges had not been recorded in the books. Goods costing $500 lost by fire not recorded in the books. This loss was not insured. Wages and salaries of $5 500 were accrued at 30 June 20X4. Equipment is to be depreciated by 20% per annum on cost and motor vehicles to be depreciated using the diminishing (reducing) balance method at 30% per annum. (i) (il) (Iv) (v) (vi)
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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