Question 2 Coconut Limited produces vegan snacks for distribution to various retailers a The following is the trial balance of Coconut Limited for the year ended 28 February 2022: Credit Debit Account Name 14 000 Inventory 22 000 Trade receivables Revenue Cost of sales Property, plant and equipment (Carrying value) Telephone expense Revaluation reserve Salaries and wages Trade payables Retained earnings-1 March 2021 Share capital Advertising expenses Depreciation Loan Bank 5 000 Finance income 10 000 Additional Information: . The outstanding loan is payable over the next three years in the following ratio 30: 20:50. Inventory with a cost price of R10 000 (Selling price of R15 000) was returned by a debtor. This entry has not yet been accounted for. . 10 000 shares were issued on 28 February 2022 at R2 each for cash. This entry has not yet been accounted for. The revaluation reserve is due to land being revalued two years ago. . 550 000 42 000 7500 250 000 20 000 65 000 757 500 2 000 85 000 16 000 50 000 55 000
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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