What are the effects of these transactions on the accounting equation?
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.
QUESTION 1
Becky sets up a trading business, buying and selling goods. The following transactions occurred during July 2020, her first month of trading
Date
Becky introduced GH€500,000 into the business by paying money into a business bank account.
The business bought a motor van for GH€60,000. The payment was by cheque.
The business bought some inventory for GH 30,000, paying by cheque.
The entire inventory purchased transaction was sold for GH650,000 in cash
More inventory was purchased for GHe 100,000 on credit.
50% of the inventory purchased in transaction 5 was sold for GH GH€80.000. All these sales were on credit.
A payment of GH GH€30,000 was made to a supplier for some of the purchases.
A payment of GH440,000 was received from a customer for some of the sales on credit.
Becky drew GHe10,000 from the bank account for her personal use.
Becky paid GH&2,000 for diesel for the motor van using a business cheque.
The business paid GH¢15,000 by cheque for the premium on an insurance policy.
The business received a bank loan of GH¢100,000, repayable in two months.
Required
a) What are the effects of these transactions on the
b) Record the above transaction in the books of original entry.
c)
d) Close off each account and extract a
e) Prepare a statement of profit or loss and a
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