The following is an extract of Mini Travel Sdn Bhd previous year's Statement of Financial Position as at 31 December 2020. RM CURRENT ASSETS Accrued rental income 1,300 CURRENT LIABILITIES Accrued promotion and advertising Prepaid commission income Accrued interest on loan 200 360 120 During the year ended 31 December 2020, the following transactions took place: 1. The monthly rental income was RM1,300. During the year 2020, rental received amounted to RM14,300. The business paid for promotion and advertising expenses to the sum of RM1,260. This included a promotional activity for January 2019, and the related cost was 2. RM640. 3. Commission receivable each month was RM200. During the year, RM1,980 was received. The interest on loan for the year was RM720. However, payments made during the year amounted to RM780. 4. Required: Prepare the following accounts for the year ended 31 December 2020. You are to show the adjusting entries and amount of expenses charged and revenue credited to the Income Statement. (a) (i) Revenue accounts (Rental and Commission). (ii) Expenses accounts (Promotion & Advertising and Interest on Loan). (b) An extract of the Statement of Comprehensive Income for the year ended 31 December 2020. (c) An extract of the Statement of Financial Position as at 31 December 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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