Required: a. Prepare an Income Statement for the year ended 31 December 2023. b. Prepare a Statement of Financial Position as at that date.
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.
![The following are the unadjusted ledger balances of La Vie Limited for the
year ended 31 December 2023:
Ordinary Share Capital
Sales
Trade payables
Returns Outwards
Purchases
Returns Inwards
Carriage outwards
Carriage inwards
Rental expense
Insurance expense
Sales and Marketing
Office salaries expense
Cash at Bank
Opening Inventory at 1st January 2023
Trade Receivables
Plant and Machinery at cost
Accumulated Depreciation (1st January 2023: Plant and Machinery)
Motor Vehicles at cost
Irrecoverable debts to be written off
Rental expense owing as at 31 December 2023
Depreciation for the year - Plant and Equipment
Depreciation for the year - Motor Vehicles
Required:
a. Prepare an Income Statement for the year ended 31 December 2023.
400,000
480,000
17,880
720
176,000
480
880
500
Additional information needed for year-end adjustments, are as follows:
Insurance for January 2024
$800
Closing Inventory, at 31 December 2023
$3,500
$350
$11,000
10% using straight line method
18% on cost
b. Prepare a Statement of Financial Position as at that date.
64,000
21,000
25,640
20,000
32,700
7,400
40,000
400,000
40,000
150,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcc90cb3e-fff1-4390-ba90-017272465315%2F1b87cd1e-95aa-4793-9874-b6f8fd0895e3%2F8s6g3y_processed.png&w=3840&q=75)
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