The accountant for the firm owned by Vincent Sutton prepares financial statements at the end of each month. Transactions: a. Sutton invested $144,000 in cash to start the business. b. Paid $4,400 for the current month's rent. c. Bought office furniture for $15,120 in cash. d. Performed services for $8,800 in cash. e. Paid $1,090 for the monthly telephone bilI. f. Performed services for $14,600 on credit. g. Purchased a computer and copier for $34,800; paid $11,400 in cash immediately with the balance due in 30 days. h. Received $7,300 from credit clients. i. Paid $2,400 in cash for office cleaning services for the month. j. Purchased additional office chairs for $4,200; received credit terms of 30 days. k. Purchased office equipment for $24,000 and paid half of this amount in cash immediately;, the balance is due in 30 days. I. Issued a check for $7,800 to pay salaries. m. Performed services for $15,100 in cash. n. Performed services for $16,600 on credit. o. Collected $6,400 on accounts receivable from charge customers. p. Issued a check for $2,100 in partial payment of the amount owed for office chairs. q. Paid $540 to a duplicating company for photocopy work performed during the month. r. Paid $1,060 for the monthly electric bill. s. Sutton withdrew $7,400 in cash for personal expenses. Required: Prepare a trial balance, an income statement, a statement of owner's equity, and a balance sheet. Assume that the transactions place during the month ended June 30, 20X1. Determine the account balances before you start work on the financial statement Analyze: What is the change in owner's equity for the month of June?
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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