Q 1. From the following Trial Balance prepare Trading and Profit and Loss Account for the year ended 31 December, 2020 and Balance Sheet as on that date: Dr. (Rs.) Cr. (Rs.) 10,000 46,000 Drawings Stock on 01/01/2019 Purchases and Purchases Returns 1,50,200 3,400 22,660 38,600 600 Cash in Hand Bank Balance Freehold Premises Trade Expenses Printing, stationery and Advertising Professional Charges 840 1,640 280 Commission Received 3,300 Investments as on 1 Jan. @ 10% 4,000 Interest on above 200 Sundry Debtors and Creditors Wages Salaries 36,000 25,000 14,000 29,000 Capital 1,14,000 Income Tax 1,600 6,300 550 3,200 3,050 4,000 Discount allowed and received 4,600 Sales Returns and Sales 2,08,950 Bills Receivable /Bills Payable 10,000 Office furniture Rent, Rates and Insurance Bad Debts Provisions 670 Total 3,71,320 3,71,320 Adjustments: (a) Provide for wages Rs. 5,000. (b) Write Off 5% depreciation on freehold premises and 10% on office furniture. (c) Insurance to the extent of Rs. 200 relates to 2021. (d) Stock on 31.12.2020 is Rs. 5,20,00. (e) Charge interest on capital 5% and on drawings Rs. 300. (f) Further bad debts are Rs. 1,000. (g) Provide for doubtful debts @ 5% on sundry debtors. (h) Make provisions for discount on debtors and reserve for discount on creditors @2%.
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.
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