Question#1 Dr. Jasim Hussain., opened a clinic on August 1, 2019. The business transactions for August are shown below: Aug. 1 Dr. Jasim, invested PKR3150000 cash in the business in exchange for 1,000 shares of capital stock. Aug. 4 Land and a building were purchased for PKR400000. Of this amount, PKR80000 applied to the land and PKR320000 to the building. A cash payment of PKR120000 was made at the time of the purchase, and a note payable was issued for the remaining balance. Aug. 9 Medical instruments were purchased for PKR8500 cash. Aug. 16 Office fixtures and equipment were purchased for PKR29000. Dr. Jasim paid PKR17000 at the time of purchase and agreed to pay the entire remaining balance in 15 days. Aug. 21 Office supplies expected to last several months were purchased for PKR5200 cash. Aug. 24 Dr. Jasim billed patients PKR15000 for services rendered. Of this amount, PKR8000 was received in cash, and PKR7000 was billed on account (due in 30 days). Aug. 27 A PKR950 invoice was received for several newspaper advertisements placed in August. The entire amount is due on September 8. Aug. 28 Received a PKR3500 payment on the PKR 7000 account receivable recorded August 24. Aug.31 Paid employees PKR2400 for salaries earned in August. A partial list of account titles used by Dr. Jasim includes: 1. Cash Office Fixtures and Equipment 2. Accounts Receivable 3. Land 4. Office Supplies Building 5. Notes Payable 6. Service Revenue 7. Accounts Payable 8. Advertising Expense 9. Capital Stock 10. Salary Expense 11. Medical Instruments Requirements a. Analyze the effects that each of these transactions will have on the following six components of the company's financial statements for the month of August. Organize your answer in tabular form, using the column headings shown below. Use I for increase, D for decrease, and NE for no effect. The August 1 transaction is provided for you: Income Statement Balance Sheet Transaction Revenue - Expenses = Net Income Assets = Liabilities + Owners' Equity Aug. 1 NE NE NE NE b. Prepare journal entries (including explanations) for each transaction. c. Post each transaction to the appropriate ledger d. Prepare a trial balance dated August 31, 2011.
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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