The following transactions relates to Edwards Co for the month of January 2013. You are required to record the journal entries for these transactions in the general journal, post them to the ledger accounts and then prepare the trial balance for the company. Edward Wilson invested $8,000 cash in his new landscaping business. The business paid the first month's rent with $300 cash. The business purchased equipment by paying $2,000 cash and executing a note payable for $3,000. The business purchased supplies for $200 cash. The business billed clients for a total of $1,000 for design services rendered. The business received $750 cash from clients for services rendered above. The owner took a withdrawal of $2,000.
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 relates to Edwards Co for the month of January 2013. You are required to record the
- Edward Wilson invested $8,000 cash in his new landscaping business.
- The business paid the first month's rent with $300 cash.
- The business purchased equipment by paying $2,000 cash and executing a note payable for $3,000.
- The business purchased supplies for $200 cash.
- The business billed clients for a total of $1,000 for design services rendered.
- The business received $750 cash from clients for services rendered above.
- The owner took a withdrawal of $2,000.
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