The unadjusted trial balance of Inaknot Insurance Corp. includes the following account balances at December 31, 2020, its fiscal year‐end. Assume all accounts have normal debit or credit balances. Prepaid insurance Truck Unearned commissions revenue Rent earned Advertising expense Salaries expense Supplies expense $ 1,800 18,000 9,000 ‐0‐ 5,000 25,000 900 The following information is available: A physical count indicates that $200 of supplies have not been used at December 31. The prepaid insurance consists of a one‐year policy, effective October 1. The truck was purchased on July 1; it is expected to have a useful life of 6 years. No depreciation has been recorded during the year. The unearned commission revenue at December 31 is $7,500. Two days of salary amounting to $200 remain unpaid and unrecorded at December 31; the amounts will be included with the next Friday’s payment, which will be in January. Rental revenue of $300 has not yet been received for a sublet of part of a warehouse for 2 weeks during December. A $300 bill for December advertising has not yet been recorded. Required: Prepare all necessary adjusting entries at December 31, 2020. General ledger account numbers and descriptions are not necessary.
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.
Problem 1:
The unadjusted
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Prepaid insurance Truck Unearned commissions revenue Rent earned Advertising expense Salaries expense Supplies expense |
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$ 1,800 18,000 9,000 ‐0‐ 5,000 25,000 900 |
The following information is available:
- A physical count indicates that $200 of supplies have not been used at
December 31.
- The prepaid insurance consists of a one‐year policy, effective October 1.
- The truck was purchased on July 1; it is expected to have a useful life of 6 years. No
depreciation has been recorded during the year. - The unearned commission revenue at December 31 is $7,500.
- Two days of salary amounting to $200 remain unpaid and unrecorded at December 31; the amounts will be included with the next Friday’s payment, which will be in January.
- Rental revenue of $300 has not yet been received for a sublet of part of a warehouse for 2 weeks during December.
- A $300 bill for December advertising has not yet been recorded.
Required: Prepare all necessary
General ledger account numbers and descriptions are not necessary.
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General Journal |
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PR |
Debit |
Credit |
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Problem 2
The unadjusted trial balance of Langford Limited includes the following account balances at December 31, 2020, its fiscal year‐end. Assume all accounts have normal debit or credit balances.
Short‐term investments $15,000
Prepaid rent 1,200
Unused supplies ‐0-
Bank loan 7,500
Unearned subscriptions revenue 9,000
Insurance expense 2,400
Salaries expense 75,000
Supplies expense 600
Utilities expense ‐0‐
The following information relates to the fiscal year‐end:
- Accrued interest revenue on the short‐term investment amounts to $40 at
December 31.
- The prepaid rent applies equally to the months of November and December 2020
- and January 2021.
- Accrued interest expense on the bank loan amounts to $50 at December 31.
- One–third of the subscriptions revenue remains unearned at December 31.
- Insurance expense includes the cost of a one‐year insurance policy, effective
January 1, 2020, and the cost of a one‐year renewal, effective January 1,
- The cost for each year is $1,200.
- Two days of salary have not yet been accrued at December 31; the usual salary for a five‐day week is $2,500.
- A physical count indicates that $100 of supplies is still on hand at December
31.
- A $200 bill for electricity has not yet been recorded for December.
Required: Prepare all necessary adjusting entries. General ledger account numbers and descriptions are not necessary.
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General Journal |
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Debit |
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