Question 1 Brian started in business on 1 December 2021. The following is a list of his transactions for his first month of trading: December, 2021 Dec 1 Opened a business bank account with RM 25,000 from his personal account Paid one month's rent of RM 2,000 by cheque Bought goods costing RM 5,000 on credit from Linda Purchased motor car from Savoy Motors RM 4,000 on credit Purchased goods costing RM 3,000 on credit from Sydney Cash sales of RM 6,000 More goods costing RM 10,000 purchased from Linda on credit Sold goods on credit to Ann for RM 8,000 Returned RM 2,000 of goods to Linda Paid RM 6,000 in cash into the bank Ann returned RM 1,000 of goods Withdrew RM 500 in cash from the bank to open a petty cash account Cheque received from Ann for RM 5500 Offices expenses of RM 250 paid out of petty cash Sent a cheque to Savoy Motors for RM 4,000 Cheques sent to Linda and Sydney for RM 8,000 and RM 2,000 Paid by cheque another month's rent of RM 2,000 Brian introduced RM 5,000 additional capital into the business by cheque 2 3 4 10 15 20 22 23 24 25 26 28 29 30 31 31 ... c) Compile a trial balance as at 31 December 2021
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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