The following data were selected from the records of Sykes Company for the year ended December 31, Current Year. Balances January 1, Current Year Accounts receivable (various customers) Allowance for doubtful accounts $ 120,000 ৪,000 In the following order, except for cash sales, the company sold merchandise and made collections on credit terms 2/10, n/30 (assume a unit sales price of $500 in all transactions). Transactions during Current Year a. Sold merchandise for cash, $235,000. b. Sold merchandise to R. Smith; invoice price, $11,500. C. Sold merchandise to K. Miller; invoice price, $26,500. d. Two days after purchase date, R. Smith returned one of the units purchased in (b) and received account credit. e. Sold merchandise to B. Sears; invoice price, $24,000. f. R. Smith paid his account in full within the discount period. g. Collected $98,000 cash from customer sales on credit in prior year, all within the discount periods. h. K. Miller paid the invoice in (c) within the discount period. i. Sold merchandise to R. Roy; invoice price, $19,000. j. Three days after paying the account in full, K. Miller returned seven defective units and received a cash refund. k. After the discount period, collected $6,000 cash on an account receivable on sales in a prior year. I. Wrote off a prior year account of $3,000 after deciding that the amount would never be collected. m. The estimated bad debt rate used by the company was 1.5 percent of credit sales net of returns.
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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Required Information
P6-7 (Static) (Supplement) Recording Sales, Returns, and Bad Debts
[The following information applies to the questions displayed below.]
The following data were selected from the records of Sykes Company for the year ended December 31, Current Year.
Balances January 1, Current Year
Accounts receivable (various customers)
Allowance for doubtful accounts
$ 120,000
8,000
In the following order, except for cash sales, the company sold merchandise and made collections on credit terms 2/10,
n/30 (assume a unit sales price of $500 in all transactions).
Transactions during Current Year
a. Sold merchandise for cash, $235,000.
b. Sold merchandise to R. Smith; invoice price, $11,500.
c. Sold merchandise to K. Miller; invoice price, $26,500.
d. Two days after purchase date, R. Smith returned one of the units purchased in (b) and received account credit.
e. Sold merchandise to B. Sears; invoice price, $24,000.
f. R. Smith pald his account in full within the discount period.
g. Collected $98,000 cash from customer sales on credit in prior year, all within the discount periods.
h. K. Miller paid the invoice in (c) within the discount period.
1. Sold merchandise to R. Roy; invoice price, $19,000.
j. Three days after paying the account in full, K. Miller returned seven defective units and received a cash refund.
k. After the discount period, collected $6,000 cash on an account receivable on sales in a prior year.
1. Wrote off a prior year account of $3,000 after deciding that the amount would never be collected.
m. The estimated bad debt rate used by the company was 1.5 percent of credit sales net of returns.
P6-7 Part 2
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