Purchased land for a future building site for $37,500, paying $5,000 in cash and giving a note payable for the remainder. 30 Paid dividends, $2,500. 30 Rented land purchased on November 30 to a local university for use as a parking lot for athletic events; received advance payment of $1,800. Required: 1. Journalize the transactions for November in a two-column journal. If an amount box does not require an entry, leave the box blank.
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.
Orange Realty acts as an agent in buying, selling, renting, and managing real estate. The trial balance on October 31, 20Y4, is shown next.
| ORANGE REALTY Trial Balance October 31, 20Y4 |
||||||
| Debit Balances |
Credit Balances |
|||||
| Cash | 16,960 | |||||
| 34,900 | ||||||
| Prepaid Insurance | 3,600 | |||||
| Office Supplies | 800 | |||||
| Land | - | |||||
| Accounts Payable | 4,960 | |||||
| Unearned Rent | - | |||||
| Notes Payable | - | |||||
| Common Stock | 5,000 | |||||
| 26,540 | ||||||
| Dividends | 12,800 | |||||
| Fees Earned | 176,000 | |||||
| Salary and Commission Expense | 112,000 | |||||
| Rent Expense | 14,000 | |||||
| Advertising Expense | 11,440 | |||||
| Automobile Expense | 5,120 | |||||
| Miscellaneous Expense | 880 | |||||
| 212,500 | 212,500 |
The following business transactions were completed by Orange Realty during November 20Y4:
| Nov. | 1 | Purchased office supplies on account, $1,050. | ||
| 2 | Paid rent on office for month, $2,000. | |||
| 3 | Received cash from clients on account, $22,300. | |||
| 5 | Paid annual insurance premiums, $2,850. | |||
| 9 | Returned a portion of the office supplies purchased on November 1, receiving full credit for their cost, $200. | |||
| 17 | Paid advertising expense, $2,750. | |||
| 23 | Paid creditors on account, $2,475. | |||
| 29 | Paid miscellaneous expenses, $250. | |||
| 30 | Paid automobile expense (including rental charges for an automobile), $750. | |||
| 30 | Discovered an error in computing a commission; received cash from the salesperson for the overpayment, $500. | |||
| 30 | Paid salaries and commissions for the month, $13,900. | |||
| 30 | Recorded revenue earned and billed to clients during the month, $41,500. | |||
| 30 | Purchased land for a future building site for $37,500, paying $5,000 in cash and giving a note payable for the remainder. | |||
| 30 | Paid dividends, $2,500. | |||
| 30 | Rented land purchased on November 30 to a local university for use as a parking lot for athletic events; received advance payment of $1,800. |
Required:
1. Journalize the transactions for November in a two-column journal. If an amount box does not require an entry, leave the box blank.
2. Record the November 1, 20Y4, balance of each account in the appropriate balance column of a T account.
3.
4. Prepare a trial balance of the ledger as of November 30, 20Y4. If an amount box does not require an entry, leave the box blank.
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