The trial balance of XYZ COMPANY shows the following items of income and expense for the period ended December 31, 2019: Accounts Dr. Cr. Sales 1,800,000 Interest income 120,000 Gains 40,000 Inventory, beg.100,000 Purchases400,000 Freight-in20,000 Purchase returns 10,000 Purchase discounts 14,000 Freight-out50,000 Sales commission60,000 Advertising expense30,000 Salaries expense600,000 Rent expense60,000 Depreciation expense80,000 Utilities expense40,000 Supplies expense20,000 Transportation and travel expense10,000 Insurance expense24,000 Taxes and licenses140,000 Interest expense4,000 Miscellaneous expense2,000 Loss on the sale of equipment30,000 Totals 1,670,000 1,984,000 Additional information: a. Ending inventory is ₱160,000. b. One-half of the salaries, rent, and depreciation expenses pertain to the sales department. The sales department does not share in the other expenses. Requirements: a. Prepare the statement of comprehensive income using the function of expense method (Multi-step approach). Be sure to place a proper heading for the statement. b. Prepare a partial “notes” showing breakdowns for the selected line items.
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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