PROBLEM # 2 The following information is available from the record of Shams and Co. on December 31, 2005 Salaries payable amounted to Rs 80,000 Outstanding insurance expense amounted to Rs 5,000
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 # 2
The following information is available from the record of Shams and Co. on December 31, 2005
- Salaries payable amounted to Rs 80,000
- Outstanding insurance expense amounted to Rs 5,000
- Unpaid wages Rs 2,000
- Salaries earned by the employees but not yet paid Rs10,000
- Commission receivable Rs 5,000
- Rent income not yet received Rs12,000
- Rent earned but not yet received Rs 10,000
- Accrued interest income Rs 5,000
- Insurance prepaid to the extent Rs 2,000 (Prepaid Insurance Rs 5,000)
- Rent Expired Rs 4,000 (Prepaid rent Rs 10,000)
- Insurance premium paid in advance for 1 year on 1’st Oct,2005(Prepaid insurance Rs 120,000)
- Insurance premium paid in advance for 2 year on 1’st Nov, 2005(Prepaid insurance Rs72,000)
- Rent prepaid RS 5,000(Rent expense Rs8,000)
- Advertising expense paid for 3 years on 1’st Sep, 2005(Advertising expense Rs108,000)
- Rent income Rs2,000(Unearned rent Rs6,000)
- Rent received in advance for 8 years on 1’st Mar,2005(Unearned rent Rs96000)
- Commission earned but not yet received Rs6,000(Commission income Rs10,000)
- Unearned rent Rs3,000(Rent income Rs7,000)
- Rent received in advance for 5 years on June 1’st, 2005(Rent income Rs60,000)
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