The statement of the financial position of Happy Easter Enterprise given below did not agree and the balance of GH¢26,940 was entered in the suspense account. HAPPY EASTER ENTERPRISE STATEMENT OF FINANCIAL POSITION AS AT 30TH JUNE, 2018 Non-Current Assets: Cost Depreciation Net Book Value GH¢ GH¢ GH¢ Furniture & Fittings 90,000 36,000 54,000 Delivery Van 12,000 6,000 6,000 102,000 42,000 60,000 Current Assets: Inventory 6,000 Accounts receivable 12,000 Cash at bank 300 18,300 Current Liabilities: Accounts payable (7,200) Net current asset 11,100 Net assets 71,100 Financed By: Capital 12,000 Net profit for the year 32,160 Suspense account 26,940 71,100 Upon investigations, the following errors were discovered: (i) Accounts payable had been understated by GH¢6,000. (ii) The sales figure for the period was understated by GH¢540. (iii) The closing inventory amounted to GH¢7,200 but the amount stated in the statement of financial position was the beginning inventory. (iv) A loan from the D-Bank of GH¢3,000 was credited to the income statement. (v) Discount allowed of GH¢600 had been credited to the income statement and discount received of GH¢900 had been debited to the income statement. (vi) Drawings of GH¢6,000 had been debited to the income statement. (vii) A new delivery van costing GH¢3,000 had been debited to the delivery van running expenses. It is the policy of Excellence Enterprise not to charge depreciation in the year of purchase. Graham, Priscilla, Foster & Gabriel (0544277872/0271672064/0544630733/0242849511) 7 (viii) The balance on the allowance for bad debts account of GH¢1,080 as at 1 July 2017 had been credited to the income statement account. The bad debt allowance should have been made equal to 10% of account receivables as at 30th June 2018. (ix) Depreciation is charged on the furniture and fittings at the rate of 20% per annum on cost, and on delivery van at the rate of 50% on the reducing balance. The depreciation for the year to 30th June 2018 had been correctly charged to the income statement for the year but no adjustments had been made elsewhere. You are required to prepare: a) A statement correcting the net profit for the year. b) The corrected statement of financial position as at 30th June 2018.
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 statement of the financial position of Happy Easter Enterprise given below did not agree and
the balance of GH¢26,940 was entered in the suspense account.
HAPPY EASTER ENTERPRISE
STATEMENT OF FINANCIAL POSITION AS AT 30TH JUNE, 2018
Non-Current Assets: Cost
GH¢ GH¢ GH¢
Furniture & Fittings 90,000 36,000 54,000
Delivery Van 12,000 6,000 6,000
102,000 42,000 60,000
Current Assets:
Inventory 6,000
Cash at bank 300 18,300
Current Liabilities:
Accounts payable (7,200)
Net current asset 11,100
Net assets 71,100
Financed By:
Capital 12,000
Net profit for the year 32,160
Suspense account 26,940
71,100
Upon investigations, the following errors were discovered:
(i) Accounts payable had been understated by GH¢6,000.
(ii) The sales figure for the period was understated by GH¢540.
(iii) The closing inventory amounted to GH¢7,200 but the amount stated in the statement
of financial position was the beginning inventory.
(iv) A loan from the D-Bank of GH¢3,000 was credited to the income statement.
(v) Discount allowed of GH¢600 had been credited to the income statement and discount
received of GH¢900 had been debited to the income statement.
(vi) Drawings of GH¢6,000 had been debited to the income statement.
(vii) A new delivery van costing GH¢3,000 had been debited to the delivery van running
expenses. It is the policy of Excellence Enterprise not to charge depreciation in the year
of purchase.
Graham, Priscilla, Foster & Gabriel (0544277872/0271672064/0544630733/0242849511) 7
(viii) The balance on the allowance for
been credited to the income statement account. The bad debt allowance should have
been made equal to 10% of account receivables as at 30th June 2018.
(ix) Depreciation is charged on the furniture and fittings at the rate of 20% per annum on
cost, and on delivery van at the rate of 50% on the reducing balance. The depreciation
for the year to 30th June 2018 had been correctly charged to the income statement for
the year but no adjustments had been made elsewhere.
You are required to prepare:
a) A statement correcting the net profit for the year.
b) The corrected statement of financial position as at 30th June 2018.
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