Rachet Corporation is a wholesale distributor of truck replacement parts. Initial amounts taken from Rachet's records are as follows: Inventory at December 31 (based on a physical count of goods in Rachet's warehouse on December 31) Accounts payable at December 31: Vendor Boxes Company Crates Company Driver Company Express Company Freight Company Gears Company Accounts payable, December 31 Sales for the year Terms 2%, 10 days, net 30 Net 30 Net 30 Net 30 Net 30 Net 30 $ 1,390,000 Amount $ 293,000 238,000 328,000 253,000 $ 1,112,000 $ 9,700,000 Additional Information: 1. Parts held by Rachet on consignment from Crates, amounting to $225,000, were included in the physical count of goods in Rachet's warehouse and in accounts payable at December 31. 2. Parts totaling $36,000, which were purchased from Freight and paid for in December, were sold in the last week of the year and appropriately recorded as sales of $42,000. The parts were included in the physical count of goods in Rachet's warehouse on December 31 because the parts were on the loading dock waiting to be picked up by customers. 3. Parts in transit on December 31 to customers, shipped f.o.b. shipping point on December 28, amounted to $62,000. The customers received the parts on January 6 of the following year. Sales of $68,000 to the customers for the parts were recorded by Rachet on January 2. 4. Retailers were holding goods on consignment from Rachet, which had a cost of $350,000 and a retail value of $390,000. 5. Goods were in transit from Gears to Rachet on December 31. The cost of the goods was $39,000, and they were shipped f.o.b. shipping point on December 29. 6. A freight bill in the amount of $3,400 specifically relating to inventory purchased in December, all of which was still in the inventory at December 31, was received on January 3. The freight bill was not included in either the inventory or in accounts payable at December 31. 7. All the purchases from Boxes occurred during the last seven days of the year. These items have been recorded in accounts payable and accounted for in the physical inventory at cost before discount. Rachet's policy is to pay invoices in time to take advantage of all discounts, adjust inventory accordingly, and record accounts payable net of discounts.
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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