QUESTION FOUR The following trial balances for the year ended 31 December 2020 were obta Head Office and Branch of Spring Limited. Head Office Debit Credit Debit Credit GHe'000 GHe'000 GH'000 GHe'000 10,500 54,000 Office equipment Motor vehicles Retained earnings 1,800 4,200 52,200 Branch current accounts 49,500 Inventory (at cost or mark up at 1/1/2020) 21,600 63,600 Goods from Head Office 55,800 Purchases 114,000 Sales 145,500 90,600 Head office current accounts 12,300 Stated capital 28,980 31,500 13,200 Administrative expenses Provision for unrealised profit 4,320 Goods sent to branch 85,800 316,800 316,800 102,900 102,900 Additional information was as follows: i) The branch deposited cash on behalf of the head office in the bank on 31 December 2020. No record of this transaction had been made in head office books. ii) All goods sold by the branch are supplied from the head office at cost plus 25%. Inventories at 31 December 2020, excluding goods in transit were as follows: iii) GH '000 Head office at cost Branch at mark up 43,500 24,000 Branch
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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