Question 1: The following transactions are related to Cargo Wings private limited for the year 2020. Aug. 01 Aug. 01 Aug. 02 Aug. 03 Aug. 04 Aug. 04 Aug. 05 Aug. 05 Aug. 07 Owner started business with cash $12 000, building $10 000 and Bank $8 000 Bought Machinery on credit from XY & Co. $10 000 Borrowed $12 000 from bank. Repaid part of the loan taken from bank $5 000 by cheque. Owner paid pårt of bank loan of $2 000 from his personal bank account Purchased two vehicles for $10 000, ^/s was settled by cheque and remainder paid in cash Cash amounting to $2 000 deposited into bank Sold one vehicle for $5 000 on cash Cash withdrawn by the owner for his personal use $800 Sep. 02 Purchased equipment for $5 000 and paid by cheque Sep. 03 Purchased Building for $20 000 from ABC & Co. one fourth was paid immediately by cheque. Sep. 04 Cash withdrawn from the bank for office use $2 000 Sep. 05 Purchased a vehicle costing $2 000 and paid by the owner from his personal resources. Sep. 06 Lent $2 000 cash to Mr. C. Sep. 06 Sold some equipment for cash $500 Sep. 06 Owner withdrew cash for his personal use $400 Sep. 07 Received a cheque of $500 from Mr. C as part payment of the loan Required: Use the last assignment of Journal to prepare Ledger & Trial Balance
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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