Venus Pte Ltd operates a consultancy business. The following balance was from the books of the business on 1 February 2020: During the year ended 31 January 2021, $250 000 was received for consultancy fees by cheque. The business earned $350 000 consultancy fees for financial year. REQUIRED (a) Explain the term 'Consultancy fees received in advance'. (b) Prepare the journal entries to record consultancy fees for the year ended 31 January 2021. $ Consultancy fees received in advance 45 000 Date State the effect on each of the following if adjustment on consultancy fee was not made for the year ended 31 January 2021. (1) Profit for the year ended 31 January 2021 (ii) Current assets as at 31 January 2021. Venus Pte Ltd provided the following information on its rental expenses account for the year ended 31 January 2021. 2020 Feb 1 Apr 25 2021 Jan 31 31 Particulars d(0) Cash at bank d(i) Income summary Rental expense account Debit ($) 22 000 Credit ($) 1 600 2 400 18 000 Balance ($) 1 600 Cr 20 400 Dr 18 000Dr REQUIRED (d) State the names of the accounts of (d)(i) and (d)(ii) above. (a) Explain, using an accounting theory, for the need to make an adjustment for (d) ii) for the year ended 31 January 2021.
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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