Question 3 You were recently employed as the Financial Controller at Covid Free Ltd. You were provided with the following information on April 1, 2018: Balance on April 1, 2020 Debtors control Dr. $65, 145 Debtors control Cr. 600 Creditors control Dr. 950 Creditors control Cr. 75, 500 Totals for the month of April 2020 Cash purchases 35, 600 Credit purchases 62, 600 Cash Sales 47, 000 Credit Sales 75, 000 Contra entry: Set off 1, 800 Refund to cash customers 2, 800 Bad debt written off 3, 300 Discount Allowed 3, 750 Total payments to suppliers 87, 000 Total receipt from customers 98, 800 Discount received 5, 500 Dishonoured cheques: customers 2, 900 Increase in the allowance for bad debts 2, 100 Return Inwards 2, 400 Return Outwards 15, 200 Balances at 30 April 2020 Debtors control: Dr. ? Cr: $8 300 АССT1201 Creditors control: Dr. $7 500 Cr: ? Required: А. Prepare the Sales ledger control account В. Prepare the Purchases control account
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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