REQUIRED: - Statement of Income - Statement of Financial Position
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.
![MANAGEMENT DEPARTMENT, FACULTY
PROBLEM
On January 1 of the current year, Juan David opened the " J.D Men's Wear Shop", and
during the month, the following transactions were completed:
Jan.
1
Juan David invested cash P 80,000 in the business.
He bought two sewing machines amounting P 30,000 each from Patio
Merchandising, the he gave P15,000 down and the balance is payable within 60 days.
Paid a three month rental of the shop, P30,000. This was charged to
1
1
prepaid Rent account.
1
Paid a one year insurance policy, P 5,700.
Bought sewing tools P 5,900 and sewing supplies P 2,700 from Jomar
Trading on credit.
Received P 1,200 from customer for a short delivered.
Billed to Maricris Acosta, P 5,000 for two-pair of pants and polo barong
7
delivered.
10
Purchased clothing materials from Baclaran Market and paid P 15,000
cash.
13
Received P 12,500 from various customers for pants and barong made
and delivered.
14
Gave Patio Merchandising P 15,000 and issued a 60-day, 6% note for the
balance.
Paid the wages of the shop helper, P 2,500.
Juan David withdrew P 5,000 for his personal use.
15
17
18
M. Acosta gave P 2,000 as partial payment of his account.
Received P 14,750 from various customers pants and shirts delivered.
20
22
Paid the wages of the shop helper, P 2,500.
Billed Joevanie Garcia P 4,000 for barong and pants delivered t him.
Paid the following monthly expenses: utility bills, P 1,500; telephone bill, P
23
27
2,500.
At the end of accounting period, the following data were taken:
1. The sewing machines are estimated to have a 5-year useful life.
2. The actual count of sewing supplies revealed a balance of P 1,700.
3. The business is conservative to estimate a 5% of the receivables to be uncollected.
4. Balance of the clothing materials account is P 7,000.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc196b6a6-0da6-49ce-bbcd-0fe2d1ca2872%2F4d7fdd5e-c358-46ef-a1d9-cbb439208ef3%2F2j19rg_processed.jpeg&w=3840&q=75)
![Chart of Accounts
Assets
Owner's Equity
301 J. David, Capital
302 J. David, Drawing
101
Cash
102
Accounts Receivable
103a Allowance for Bad Debts
303 Income and Expenses Summary
104
Sewing Supplies
Clothing Materials
Prepaid Rent
Prepaid Insurance
Sewing Tools
Sewing Equipment
110a Accumulated Depreciation-
105
106
Income
107
401 Service Income
108
109
Expenses
501 Wages
502 Utility Expense
503 Insurance Expense
504 Telephone and Communication
Sewing Equipment
Expense
505 Sewing Supplies Used
Liabilities
506 Clothing Materials Used
Accounts Payable
Notes Payable
Accrued Interest Expense
201
507 Rent Expense
202
508 Interest Expense
203
509 Depreciation-Sewing Equiptment
510 Bad Debts](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc196b6a6-0da6-49ce-bbcd-0fe2d1ca2872%2F4d7fdd5e-c358-46ef-a1d9-cbb439208ef3%2F5cngate_processed.jpeg&w=3840&q=75)
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