The following transactions apply to Jova Company for Year 1, the first year of operation: Issued $20,000 of common stock for cash. Recognized $220,000 of service revenue earned on account. Collected $173,000 from accounts receivable. Paid $135,000 cash for operating expenses. Adjusted the accounts to recognize uncollectible accounts expense. Jova uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 1 percent of sales on account. The following transactions apply to Jova for Year 2: Recognized $330,000 of service revenue on account. Collected $345,000 from accounts receivable. Determined that $2,650 of the accounts receivable were uncollectible and wrote them off. Collected $1,800 of an account that had previously been written off. Paid $215,000 cash for operating expenses. Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 0.5 percent of sales on account. Complete the following requirements for Year 1 and Year 2. Complete all requirements for Year 1 prior to beginning the requirements for Year 2. c-1. Record the Year 1 transactions in general journal form and post them to T-accounts.
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 following transactions apply to Jova Company for Year 1, the first year of operation:
- Issued $20,000 of common stock for cash.
- Recognized $220,000 of service revenue earned on account.
- Collected $173,000 from
accounts receivable . - Paid $135,000 cash for operating expenses.
- Adjusted the accounts to recognize uncollectible accounts expense. Jova uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 1 percent of sales on account.
The following transactions apply to Jova for Year 2:
- Recognized $330,000 of service revenue on account.
- Collected $345,000 from accounts receivable.
- Determined that $2,650 of the accounts receivable were uncollectible and wrote them off.
- Collected $1,800 of an account that had previously been written off.
- Paid $215,000 cash for operating expenses.
- Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 0.5 percent of sales on account.
Complete the following requirements for Year 1 and Year 2. Complete all requirements for Year 1 prior to beginning the requirements for Year 2.
c-1. Record the Year 1 transactions in general journal form and post them to T-accounts.
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