The following balances are extracted from the books of Riz who is a sole trader as at 31-12-2020. Dr £ Cr £ Debtors 176512 Creditors 157710 Office expenses 30240 Telephone expenses 26208 Purchases. 1209600 Electricity 212184 Machine 1713600 Wages 493920 Opening profit 73862 Allowance for receivables. 7420 Sales 2400552 Sales return. 22260 loan 218820 Rent 100800 Acc. Depreciation machine. 514080 Acc. Depreciation furniture 105940 Capital 898590 Opening inventory 44352 Bank 131040 Furniture 201600 Drawings 8610 Interest 6048 ------------------------------------------------------------------------------------------------------------------------------------------ 4,376,974 4,376,974 ------------------------------------------------------------------------------------------------------------------------------------------ You are also given the following additional information at 31-12-2020: 1. Closing stock at the end of the year is £15,000 2. Salaries wages outstanding as at 31 December 2016 amounted to £20,000 3. Electricity bill outstanding as at 31 December 2016 amounted to £11,000 4. Rent paid for the next period is £5,000. 5. The Machine is depreciated on straight line method. The useful life is 10 years. 6. Furniture is depreciated using reducing balance method. The depreciation percentage is 20%. Required: 1. Income statement and statement of financial position as year ended at 31st Dec 2020. 2. Statement of financial position as year ended at 31st Dec 2020.
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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