The adjusted trial balance for MAJAN Company at December 31, 2019 contains the following. Debits Credits Building 77,000 MAJAN, Capital 67,000 Account Receivable 9,000 Accumulated Depreciation - Building 26,000 Prepaid Insurance 2,700 Account Payable 7,400 Cash 10,840 Note Payable 60,000 Equipment 37,500 Accumulated Depreciation - Equipment 11,000 Land 38,000 Interest Payable 1,600 Insurance expense 540 Golfing Revenue 8,580 Depreciation Expense 4,400 Interest expense 1,600 181,580 181,580 Instruction: (a) Prepare Income Statement (b) Prepare owner equity statement Solution: MAJAN Company Income Statement For the month ended December 31,2019 Particulars Amount ($) Amount ($) MAJAN Company Owner Equity Statement For the month ended December 31,2019
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.
- The adjusted
trial balance for MAJAN Company at December 31, 2019 contains the following.
|
Debits |
Credits |
|
Building 77,000 |
MAJAN, Capital 67,000 |
|
|
|
|
Prepaid Insurance 2,700 |
Account Payable 7,400 |
|
Cash 10,840 |
Note Payable 60,000 |
|
Equipment 37,500 |
Accumulated Depreciation - Equipment 11,000 |
|
Land 38,000 |
Interest Payable 1,600 |
|
Insurance expense 540 |
Golfing Revenue 8,580 |
|
Depreciation Expense 4,400 |
|
|
Interest expense 1,600 |
|
|
181,580 |
181,580 |
Instruction:
(a) Prepare Income Statement
(b) Prepare owner equity statement
Solution:
MAJAN Company
Income Statement
For the month ended December 31,2019
|
Particulars |
Amount ($) |
Amount ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAJAN Company
Owner Equity Statement
For the month ended December 31,2019
Step by step
Solved in 2 steps with 2 images
