Task 1 The following trial balance was extracted from the books of Zen Ltd. for the year ended 31/12/2015: (All figures in £000) Purchases & Sales 945 1575 Returns 10 15 Inventory (1/1/2014) Accounts receivable & payable 39 81 43 Carriage inwards Rates & insurance 50 Communication expenses Light & heat Audit fee 25 34 Bad debt 1 Directors remuneration 70 Interest on bank loan 5 Land & buildings at cost Vehicles at cost Vehicles- accumulated depreciation 450 140 35 Bank & cash Wages £1 Ordinary shares 6% Long term bank loan Retained profit 184 200 100 85 Totals 2053 2053 Notes at 31/12/ 2015: • Inventory was valued at £45,00. • Insurance prepaid- £2,000. Wages owing £5000 and audit fee accrued £1000. Vehicles are to be depreciated by 20% on reducing balance basis. The directors wish to provide £40,000 for taxation. The directors propose a dividend of 15p per share. You are required to prepare: 1. Outline the principles of double entry system and the steps in the accounting cycle 2. Highlight the role of financial statements and how they may be analysed/used. In addition explain how the accrual, prepayment, revenue & expense recognition, depreciation, inventory costing and liability recognition provide guidance to accountants in preparing balance sheet and income statement. 3. Prepare the statement of comprehensive income for the year ended 31/12/2015:. Candidates to provide screenshots/printouts of their workings using excel 4. Prepare the statement of Financial position (Balance Sheet) as at 31/12/2015:. Candidate: to provide screenshots/printouts of their workings using excel
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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