On January 1, 2021, the general ledger of Freedom Fireworks includes the following account balances: Accounts Debit Credit Cash $ 12,700 Accounts Receivable 37,000 Inventory 153,500 Land 82,300 Buildings 135,000 Allowance for Uncollectible Accounts $ 3,300 Accumulated Depreciation 11,100 Accounts Payable 34,200 Common Stock 215,000 Retained Earnings 156,900 Totals $ 420,500 $ 420,500 During January 2021, the following transactions occur: January 1 Borrow $115,000 from Captive Credit Corporation. The installment note bears interest at 6% annually and matures in 5 years. Payments of $2,223 are required at the end of each month for 60 months. January 4 Receive $32,500 from customers on accounts receivable. January 10 Pay cash on accounts payable, $26,000. January 15 Pay cash for salaries, $30,400. January 30 Firework sales for the month total $210,000. Sales include $66,500 for cash and $143,500 on account. The cost of the units sold is $120,000. January 31 Pay the first monthly installment of $2,223 related to the $115,000 borrowed on January 1. Round your interest calculation to the nearest dollar. Exercise 9-21 Part 2 The following information is available on January 31, 2021. Depreciation on the building for the month of January is calculated using the straight-line method. At the time the building was purchased, the company estimated a service life of 10 years and a residual value of $27,000. The company estimates future uncollectible accounts. The company determines $4,500 of accounts receivable on January 31 are past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 3% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.) Unpaid salaries at the end of January are $27,600. Accrued income taxes at the end of January are $9,500. $20,434 of the long-term note payable balance will be paid over the next year. 2. Record the adjusting entries on January 31 for the above transactions. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
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.
On January 1, 2021, the general ledger of Freedom Fireworks includes the following account balances:
| Accounts | Debit | Credit | |||||
| Cash | $ | 12,700 | |||||
| 37,000 | |||||||
| Inventory | 153,500 | ||||||
| Land | 82,300 | ||||||
| Buildings | 135,000 | ||||||
| Allowance for Uncollectible Accounts | $ | 3,300 | |||||
| 11,100 | |||||||
| Accounts Payable | 34,200 | ||||||
| Common Stock | 215,000 | ||||||
| 156,900 | |||||||
| Totals | $ | 420,500 | $ | 420,500 | |||
During January 2021, the following transactions occur:
| January 1 | Borrow $115,000 from Captive Credit Corporation. The installment note bears interest at 6% annually and matures in 5 years. Payments of $2,223 are required at the end of each month for 60 months. | |
| January 4 | Receive $32,500 from customers on accounts receivable. | |
| January 10 | Pay cash on accounts payable, $26,000. | |
| January 15 | Pay cash for salaries, $30,400. | |
| January 30 | Firework sales for the month total $210,000. Sales include $66,500 for cash and $143,500 on account. The cost of the units sold is $120,000. | |
| January 31 | Pay the first monthly installment of $2,223 related to the $115,000 borrowed on January 1. Round your interest calculation to the nearest dollar. |
Exercise 9-21 Part 2
The following information is available on January 31, 2021.
- Depreciation on the building for the month of January is calculated using the straight-line method. At the time the building was purchased, the company estimated a service life of 10 years and a residual value of $27,000.
- The company estimates future uncollectible accounts. The company determines $4,500 of accounts receivable on January 31 are past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 3% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
- Unpaid salaries at the end of January are $27,600.
- Accrued income taxes at the end of January are $9,500.
- $20,434 of the long-term note payable balance will be paid over the next year.
2. Record the
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