Required: 1. Prepare an unadjusted classified income statement in good form for the month of March.
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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Lisa Frees and Amelia Ellinger have been operating a catering business for several years. In March, the partners plan to
expand by opening a retail sales shop. They have decided to form the business as a corporation called Traveling Gourmet,
Inc. The following transactions occurred in March:
a. Received $80,000 cash from each of the two shareholders to form the corporation, in addition to $2,000 in
accounts receivable, $5,300 in equipment, a van (equipment) appraised at a fair value of $13,000, and $1,200 in
supplies, Gave the two owners each 500 shares of common stock with a par value of $1 per share.
b. Purchased a vacant store for sale in a good location for $360,000, making a $72,000 cash down payment and
signing a 10-year mortgage note from a local bank for the rest.
c. Borrowed $50,000 from the local bank on a 10 percent, one-year note.
d. Purchased food and paper supplies costing 10,200 in March; paid cash.
e. Catered four parties in March for $4,200; $1,600 was billed and the rest was received in cash.
f. Sold food at the retail store for $16,900 cash; the food and paper supplies used cost $10,830. (Hint: Record two the
revenue effect separate from the expense effect.)
g. Received a $420 telephone bill for March to be paid in April.
h. Paid $363 in gas for the van in March.
L. Paid $6,280 in wages to employees who worked in March.
j. Paid a $300 dividend from the corporation to each owner
k. Purchased $50,000 of equipment (refrigerated display cases, cabinets, tables, and chairs) and renovated and
decorated the new store for $20,000 (added to the cost of the building); paid cash.
Required:
1. Prepare an unadjusted classified income statement in good form for the north of March.
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