The following are balances on Lauren a sole trader's account, as at the end of the current financial year end, June 2021 after all entries have been processed and the profit of the year calculated Non -current assets 85,000 Receivables 7,000 Trade payables 3,000 Bank loan 15,000 Provision for depreciation 15,000 Inventory 4,000 Accruals 1,000 Prepayment 2,000 Overdraft 2,000 Provision for bad debts 1,00) What is the balance of Lauren's capital?
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.
![### Financial Balances for Sole Trader: Lauren (June 2021)
The following table provides the balances on Lauren’s sole trader account at the end of the financial year, June 2021, after all entries have been processed and the profit for the year has been calculated.
| **Balance Description** | **£** |
|---------------------------------------|---------|
| Non-current assets | 85,000 |
| Receivables | 7,000 |
| Trade payables | 3,000 |
| Bank loan | 15,000 |
| Provision for depreciation | 15,000 |
| Inventory | 4,000 |
| Accruals | 1,000 |
| Prepayment | 2,000 |
| Overdraft | 2,000 |
| Provision for bad debts | 1,000 |
**Question:** What is the balance of Lauren’s capital?
This table outlines the financial position of Lauren’s business, categorizing assets, liabilities, and provisions at the closing of the financial year. Various financial instruments and accounts are represented in the table to provide a clear view of the financial health and obligations of the business.
To calculate the capital balance, you would typically use the formula:
\[ \text{Capital} = \text{Total Assets} - \text{Total Liabilities} - \text{Provisions} \]
This formula balances out all assets, liabilities, and provisions to determine the net capital available.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F091396b6-6d10-478a-ba7c-5462932a889b%2F0f97aef3-c61e-4123-a58f-b360efda2136%2Fjud9a6g_processed.jpeg&w=3840&q=75)
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