On August 1, 2020, Mark Diamond began a tour company in the Northwest Territories called Millennium Arctic Tours. The following occurred during the first month of operations: 1 Purchased office furniture on account; $4,700. 1 Mark Diamond invested $6,100 cash into his new business. 2 Collected $2,550 in advance for a three-week guided caribou watching tour beginning later in August. 3 Paid $4,650 for six months' rent for office space effective August 1. 4 Received $2,100 for a four-day northern lights viewing tour just completed. 7 Paid $1,050 for hotel expenses regarding the August 4 tour. Mark withdrew cash of $600 for personal use. Aug. 15 22 Met with a Japanese tour guide to discuss a $100,000 tour contract. 31 Paid wages of $1,210. Required 1. Prepare general journal entries to record the August transactions. 2. Set up the following T-accounts: Cash (101); Prepaid Rent (131); Office Furniture (161); Accumulated Depreciation, Office Furniture (162); Accounts Payable (201); Unearned Revenue (233); Mark Diamond, Capital (301); Mark Diamond, Withdrawals (302); Revenue (401); Depreciation Expernse, Office Furniture (602); Wages Expense (623); Rent Expense (640); Telephone Expense (688); and Hotel Expenses (696). 3. Post the entries to the accounts; calculate the ending balance in each account. 4. Prepare an unadjusted trial balance at August 31, 2020. 5. Use the following information to prepare and post adjusting entries on August 31: a. The office furniture has an estimated life of three years and a $272 residual value. Use the straight-line method to depreciate the furniture. b. Two-thirds of the August 2 advance has been earned. c. One month of the Prepaid Rent has been used. d. The August telephone bill was not received as of August 31 but amounted to $230. 6. Prepare an adjusted trial balance. 7. Prepare an income statement, a statement of changes in equity, and a balance sheet.
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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