QUESTION 2 Xhana Ltd.is a dealer in motor vehicle parts. The information in the table below and the additional information relate to the business. Forecast income and expenditure for June-September Details June July August September Cash sales 6,400 7,800 6,700 7,300 Credit sales 6,700 9,100 4,600 5,700 Expenditure Salaries 2,100 2,100 2,100 2,100 Inventories purchases 5,500 6,100 8,400 7,500 Additional information i. The bank balance at the beginning of July was P2,200 ii. Credit sales receipts are 60% in the month of sales and 40% in the following month. iii. Other expenses are paid for in the month in which they are incurred iv. Inventories purchases are paid for 40% in the month of purchase and 60% in the following month. v. A staff canteen kitchen equipment is to be purchased in July and paid for in three months with a deposit of P2,000 in July and installments of P4,000 in August and P2,000 in September Required: Prepare a cash budget for the company for the months July, August and September
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.
QUESTION 2
Xhana Ltd.is a dealer in motor vehicle parts. The information in the table below and the
additional information relate to the business.
Details June July August September
Cash sales 6,400 7,800 6,700 7,300
Credit sales 6,700 9,100 4,600 5,700
Expenditure
Salaries 2,100 2,100 2,100 2,100
Inventories purchases 5,500 6,100 8,400 7,500
Additional information
i. The bank balance at the beginning of July was P2,200
ii. Credit sales receipts are 60% in the month of sales and 40% in the following month.
iii. Other expenses are paid for in the month in which they are incurred
iv. Inventories purchases are paid for 40% in the month of purchase and 60% in the following
month.
v. A staff canteen kitchen equipment is to be purchased in July and paid for in three months
with a deposit of P2,000 in July and installments of P4,000 in August and P2,000 in September
Required:
Prepare a
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