The following unadjusted trial balance is for Ace Construction Company at its June 30 current fiscal year-end. The credit balance of the V. Ace, Capital account was $56,500 on June 30 of the prior year, and the owner invested $22,000 cash during the current fiscal year. ACE CONSTRUCTION COMPANY Unadjusted Trial Balance June 30 Number Account Title Debit Credit 101 Cash $ 18,000 126 Supplies 8,000 128 Prepaid insurance 5,500 167 Equipment 141,760 168 Accumulated depreciation—Equipment $ 23,000 201 Accounts payable 6,000 203 Interest payable 0 208 Rent payable 0 210 Wages payable 0 213 Property taxes payable 0 251 Long-term notes payable 24,000 301 V. Ace, Capital 78,500 302 V. Ace, Withdrawals 32,500 403 Construction revenue 147,000 612 Depreciation expense—Equipment 0 623 Wages expense 48,000 633 Interest expense 2,640 637 Insurance expense 0 640 Rent expense 11,000 652 Supplies expense 0 683 Property taxes expense 4,000 684 Repairs expense 2,400 690 Utilities expense 4,700 Totals $ 278,500 $ 278,500 Adjustments: Supplies available at the end of the current fiscal year total $2,880. Cost of expired insurance for the current fiscal year is $3,465. Annual depreciation on equipment is $8,000. June utilities expense of $530 is not included in the unadjusted trial balance because the bill arrived after the trial balance was prepared. The $530 amount owed must be recorded. Employees have earned $1,600 of accrued and unpaid wages at fiscal year-end. Rent expense incurred and not yet paid or recorded at fiscal year-end is $100. Additional property taxes of $600 have been assessed for this fiscal year but have not been paid or recorded at fiscal year-end. $240 of accrued interest for June has not yet been paid or recorded. Required: 1. Prepare a 10-column work sheet for the current fiscal year, starting with the unadjusted trial balance and including adjustments using the above additional information. 2a. Prepare the adjusting entries (all dated June 30). 2b. Prepare the closing entries (all dated June 30). 3a. Prepare the income statement for the year ended June 30. 3b. Prepare the statement of owner's equity for the year ended June 30. 3c. Prepare the classified balance sheet at June 30.
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 unadjusted
| ACE CONSTRUCTION COMPANY | |||
| Unadjusted Trial Balance | |||
| June 30 | |||
| Number | Account Title | Debit | Credit |
|---|---|---|---|
| 101 | Cash | $ 18,000 | |
| 126 | Supplies | 8,000 | |
| 128 | Prepaid insurance | 5,500 | |
| 167 | Equipment | 141,760 | |
| 168 | $ 23,000 | ||
| 201 | Accounts payable | 6,000 | |
| 203 | Interest payable | 0 | |
| 208 | Rent payable | 0 | |
| 210 | Wages payable | 0 | |
| 213 | Property taxes payable | 0 | |
| 251 | Long-term notes payable | 24,000 | |
| 301 | V. Ace, Capital | 78,500 | |
| 302 | V. Ace, Withdrawals | 32,500 | |
| 403 | Construction revenue | 147,000 | |
| 612 | Depreciation expense—Equipment | 0 | |
| 623 | Wages expense | 48,000 | |
| 633 | Interest expense | 2,640 | |
| 637 | Insurance expense | 0 | |
| 640 | Rent expense | 11,000 | |
| 652 | Supplies expense | 0 | |
| 683 | Property taxes expense | 4,000 | |
| 684 | Repairs expense | 2,400 | |
| 690 | Utilities expense | 4,700 | |
| Totals | $ 278,500 | $ 278,500 |
Adjustments:
- Supplies available at the end of the current fiscal year total $2,880.
- Cost of expired insurance for the current fiscal year is $3,465.
- Annual depreciation on equipment is $8,000.
- June utilities expense of $530 is not included in the unadjusted trial balance because the bill arrived after the trial balance was prepared. The $530 amount owed must be recorded.
- Employees have earned $1,600 of accrued and unpaid wages at fiscal year-end.
- Rent expense incurred and not yet paid or recorded at fiscal year-end is $100.
- Additional property taxes of $600 have been assessed for this fiscal year but have not been paid or recorded at fiscal year-end.
- $240 of accrued interest for June has not yet been paid or recorded.
Required:
1. Prepare a 10-column work sheet for the current fiscal year, starting with the unadjusted trial balance and including adjustments using the above additional information.
2a. Prepare the
2b. Prepare the closing entries (all dated June 30).
3a. Prepare the income statement for the year ended June 30.
3b. Prepare the statement of owner's equity for the year ended June 30.
3c. Prepare the classified
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Adjusting entries and closing entries are the journal entries reported at the end of the year. Adjusting entries are recorded to settle-off the prepayments and accruals whereas closing entries are recorded to close the temporary accounts.
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