The general ledger of Red Storm Cleaners at January 1, 2018, includes the following account balances: Credits Debits $12,500 Accounts Cash Accounts Receivable Supplies Equipment Accumulated Depreciation Salaries Payable Common Stock Retained Earnings Totals 6,500 2,500 17,500 $ 6,000 8500 17,500 7,000 $39,000 $39,000 The following is a summary of the transactions for the year a. March 12 Provide services to customers, $45,000, of which $19,500 is on account. b. May 2 Collect on accounts receivable, $16,500. c. June 30 Issue shares of common stock in exchange for $5,000 cash. d. August 1 Pay salaries, $24,500 (of which $8,500 is for salaries payable in 2017). e. September 25 Pay repairs and maintenance expenses, $11,500. f October 19 Purchase equipment for $6,500 cash. g. December 30 Pay $1,000 cash dividends to stockholders. h. Accrued salaries at year-end amounted to $1,000. Depreciation for the year on the equipment is $3,500. Office supplies remaining on hand at the end of the year equal $1,200.
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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