Provide solution for the following with proper explanation: a)Faith company provided the following information relating to current operations: Accounts Receivable, January 1 - 4,000,000 Accounts receivable collected - 8,600,000 Cash sales - 2,500,000 Inventory, January 1 - 4,800,000 Inventory, December 31 - 4,200,000 Purchases - 8,000,000 Gross Margin on sales - 5,400,000 What amount should be reported as accounts receivable on December 31?
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.
Provide solution for the following with proper explanation:
a)Faith company provided the following information relating to current operations:
Accounts receivable collected - 8,600,000
Cash sales - 2,500,000
Inventory, January 1 - 4,800,000
Inventory, December 31 - 4,200,000
Purchases - 8,000,000
Gross Margin on sales - 5,400,000
What amount should be reported as accounts receivable on December 31?
b)
.When examining the accounts receivable of Boss company, it is ascertained that balances relating to both receivables and payables are included in the single controlling account called "receivables control" with a debit balance of 4,850,000. An analysis of the makeup of this account consist of the following:
Accounts Receivable - customers - 7,500,000
Trade accounts receivables - officers - 600,000
Debit balance creditors - 300,000
Post-dated checks from customers - 400,000
Subscription receivable - 800,000
Accounts payable for merchandise - 4,500,000
Credit balance in customers accounts - 200,000
Cash received in advance from customers - 100,000
Expected
After analysis of the aged accounts receivable, it is determined that the allowance for doubtful accounts should be 300,000.
What is the net realizable value of accounts receivable?
c)
At the beginning of the year, Sandra company had a credit balance of 260,000 in the allowance for uncollectible accounts. Based on past experience, 3% of credit sales would be uncollectible
During the current year, the entity wrote of 325,000 uncollectible accounts. Credit sales for the year totaled 8,000,000.
What amount should be reported as an allowance for uncollectible accounts at year-end?
d)
Buitre company used allowance method of accounting for doubtful accounts. The following summary schedule was prepared from an aging of accounts receivable outstanding on December 31.
No of days outstanding of collection - Amount - Probability
0-30 days- 10,000,000 - 98%
31-60 days- 4,000,000 - 90%
Over 60 days- 2,000,000 - 80%
The following additional information is available for the current year:
Net credit sales for the year - 80,000,000
Allowance for doubtful accounts: Balance January 1 - 900,000 (cr)
Balance before adjustment, December 31 - 40,000 (dr)
The entity based the estimate of doubtful accounts on aging of accounts receivable.
What amount should be recognize as doubtful expense for the current year?
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