Required: 1. Indicate the accounting equation effects of the August and September events, using table below. (Enter any decreases to Ass Liabilities, and Stockholder's Equity with a minus sign.)
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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Lakewood Tennis Club (LTC) operates an indoor tennis facility. The company charges a $150 annual membership fee plus
a member rental rate of $20 per court per hour. LTC's fiscal year-end is August 31. LTC's revenue recognition policy is
described in its financial statement notes as follows:
Revenue Recognition–LTC generates revenue from two sources. Annual membership fees arise from providing 12 months
of services to members, so they are reported as membership revenue each month as these services are provided. Court
rental fees are generated by renting courts each day, so they are reported as service revenue when courts are used by
members.
The following events occurred.
a. On August 31, 10 new members joined and paid the annual membership fee in cash. The memberships do not begin
until September 1.
b. For the week ended September 11, LTC provided 190 court-hours of rental services for members and collected its fees
in cash.
c. On September 13, LTC purchased and received tennis balls and other supplies. The regular retail price was $220, but
LTC negotiated a lower amount ($200) that is to be paid in October.
d. On September 15, LTC paid $1,500 to employees for the hours they worked from September 1 to 15.
e. For the two weeks ended September 25, LTC provided 360 court-hours for members and collected its fees in cash.
f. On September 26, LTC's courts were used for a member's birthday party. LTC expects the member to pay the special
event booking fee of $210 on Saturday, October 2.
g. On September 27, LTC wrote a $300 check to an advertising company to prepare advertising flyers that will be inserted
in local newspapers on October 1.
h. On September 29, LTC received $210 on account for the member's birthday party that was held on September 26.
i. On September 30, LTC submitted its electricity and natural gas meter readings online. According to the suppliers'
websites, the total charges for the month will be $300. This amount will be paid on October 17 through a preauthorized
online payment.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb7efdc13-0dc0-4f4b-a7af-1a61d8f2354f%2Ffbc4b297-ef3b-47a8-bedd-3b5cac434d73%2Fggfikaj_processed.png&w=3840&q=75)
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