South Coast Boards Co. is a merchandising business. The account balances for South Coast Boards Co. as of July 1, 2010 (unless otherwise indicated), are as follows:
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.
South Coast Boards Co. is a merchandising business. The account balances for South Coast Boards Co. as of July 1, 2010 (unless otherwise indicated), are as follows:
| 110 |
Cash |
$ 63,600 |
|
112 |
|
153,900 |
|
115 |
Merchandise Inventory |
602,400 |
|
116 |
Prepaid Insurance |
16,800 |
|
117 |
Store Supplies |
11,400 |
|
123 |
Store Equipment |
469,500 |
|
124 |
|
56,700 |
|
210 |
Accounts Payable |
96,600 |
|
211 |
Salaries Payable |
— |
|
310 |
Rocky Hansen, Capital, August 1, 2009 |
555,300 |
|
311 |
Rocky Hansen, Drawing |
135,000 |
|
312 |
Income Summary |
— |
|
410 |
Sales |
3,221,100 |
|
411 |
Sales Returns and Allowances |
92,700 |
|
412 |
Sales Discounts |
59,400 |
|
510 |
Cost of Merchandise Sold |
1,623,000 |
|
520 |
Sales Salaries Expense |
334,800 |
|
521 |
Advertising Expense |
81,000 |
|
522 |
Depreciation Expense |
— |
|
523 |
Store Supplies Expense |
— |
|
529 |
Miscellaneous Selling Expense |
12,600 |
|
530 |
Office Salaries Expense |
182,100 |
|
531 |
Rent Expense |
83,700 |
|
532 |
Insurance Expense |
— |
|
539 |
Miscellaneous Administrative Expense |
7,800 |
During July, the last month of the fiscal year, the following transactions were completed: July 1. Paid rent for July, $5,000.
- Purchased merchandise on account from Belmont Co., terms 2/10, n/30, FOB shipping point,
$40,000.
- Paid freight on purchase of July 3, $600.
- Sold merchandise on account to Modesto Co., terms 2/10, n/30, FOB shipping point,
$25,000. The cost of the merchandise sold was $15,000.
- Received $26,500 cash from Yuba Co. on account, no discount.
- Sold merchandise for cash, $80,000. The cost of the merchandise sold was $50,000.
- Paid for merchandise purchased on July 3, less discount.
- Received merchandise returned on sale of July 6, $6,000. The cost of the merchandise returned was $4,500.
- Paid advertising expense for last half of July, $7,500.
- Received cash from sale of July 6, less return of July 14 and discount.
- Purchased merchandise for cash, $36,000.
- Paid $18,000 to Bakke Co. on account, no discount.
- Sold merchandise on account to Reedley Co., terms 1/10, n/30, FOB shipping point, $40,000. The cost of the merchandise sold was $25,000.
- For the convenience of the customer, paid freight on sale of July 20, $1,100.
- Received $17,600 cash from Owen Co. on account, no discount.
- Purchased merchandise on account from Nye Co., terms 1/10, n/30, FOB destination, $20,000.
- Returned $2,000 of damaged merchandise purchased on July 21, receiving credit from the seller.
- Refunded cash on sales made for cash, $3,000. The cost of the merchandise returned was
$1,800.
- Paid sales salaries of $22,800 and office salaries of $15,200.
- Purchased store supplies for cash, $2,400.
- Sold merchandise on account to Whitetail Co., terms 2/10, n/30, FOB shipping point,
$18,750. The cost of the merchandise sold was $11,250.
- Received cash from sale of July 20, less discount, plus freight paid on July 21.
- Paid for purchase of July 21, less return of July 24 and discount.
Instructions
- At the end of July, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6).
|
a. Merchandise inventory on July31 |
$589,850 |
||
|
b. Insurance expired during the year |
12,500 |
||
|
c. Store supplies on hand on July |
4,700 |
||
|
d. Depreciation for the current year |
18,800 |
||
|
e. Accrued salaries on July 31: |
|||
|
Sales salaries |
$4,400 |
||
|
Office salaries |
2,700 |
7,100 |
|
- Prepare an income statement, a statement of owner’s equity, and a
balance sheet .
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