Required: a. Prepare an income statement for the year ended December 31, 20xx. b. Evaluate your financial performance.
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.
![B-FNDC002_Enabling_Financial_Statements_and_Ratio_Analysis (2).xls [Compatibility Mode] - Excel
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2 On December 31, 20xx, you have completed your first full year in business. During the year,
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you billed PhP1,000,000 for the services you have rendered to your clients. You had two
employees, a bookkeeper and a clerical assistant. In addition to your monthly salary of
PHP20,000, you paid annual salaries of PhP142,560 and PhP139,920 to the bookkeeper
and the clerical assistant, respectively.
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8 Employment taxes and benefit costs for you and your employees totaled PhP34,600 for the
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year. Expenses for office supplies totaled PhP10,400 for the year. In addition, you
spent PhP17,000 during the year on tax-deductible travel and entertainment associated
with client visits and new business development. Lease payments for the office space
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rented (a tax-deductible expense) were PhP5,000 per month. Depreciation expense
on the office furniture and fixtures was PhP15,600 for the year. During the year, you
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paid interest of PHP15,000 on the PhP500,000 borrowed to start the business. You are
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paying an average tax rate of 30%.
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17 Required:
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19 a. Prepare an income statement for the year ended December 31, 20xx.
20 b. Evaluate your financial performance.
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22 Solution and Answer:
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