Problem 1- Pertinent accounts gathered from the record of ABC Corporation for 2020 are as follows: Purchases 5,250,000 Purchase returns and allowances 150,000 Rental income 250,000 Freight out 175,000 Salesmen's commissions 650,000 Depreciation- store equipment 125,000 Inventory, January 1 1,000,000 Inventory, December 31 1,500,000 Sales 7,850,000 Sales returns and allowances 140,000 Sales discounts 10,000 Depreciation- office equipment 300,000 Officers salaries 500,000 Freight in 500,000 Income tax 250,000 Loss on sale of equipment 50,000 Purchase discounts 100,000 Dividend revenue 150,000 Loss on sale of investment 50,000 Required: Prepare an income for the year using functional method
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.
Problem 1- Pertinent accounts gathered from the record of ABC Corporation for 2020 are as follows:
Purchases 5,250,000
Purchase returns and allowances 150,000
Rental income 250,000
Freight out 175,000
Salesmen's commissions 650,000
Inventory, January 1 1,000,000
Inventory, December 31 1,500,000
Sales 7,850,000
Sales returns and allowances 140,000
Sales discounts 10,000
Depreciation- office equipment 300,000
Officers salaries 500,000
Freight in 500,000
Income tax 250,000
Loss on sale of equipment 50,000
Purchase discounts 100,000
Dividend revenue 150,000
Loss on sale of investment 50,000
Required: Prepare an income for the year using functional method
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