inancial Statements and Closing Entries The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2019, the end of the fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet, part of which follows: The Gorman Group End-of-Period Spreadsheet For the Year Ended October 31, 2019 Adjusted Trial Balance Account Title Dr. Cr. Cash 14,020 Accounts Receivable 30,530 Supplies 4,770 Prepaid Insurance 10,300 Land 108,000 Buildings 390,000 Accumulated Depreciation-Buildings 127,100 Equipment 282,000 Accumulated Depreciation-Equipment 165,500 Accounts Payable 36,110 Salaries Payable 3,580 Unearned Rent 1,620 Nicole Gorman, Capital 462,850 Nicole Gorman, Drawing 27,100 Service Fees 514,920 Rent Revenue 5,440 Salaries Expense 369,150 Depreciation Expense—Equipment 20,000 Rent Expense 16,800 Supplies Expense 11,880 Utilities Expense 10,730 Depreciation Expense—Buildings 7,160 Repairs Expense 5,910 Insurance Expense 3,240 Miscellaneous Expense 5,530 1,317,120 1,317,120 Prepare a statement of owner's equity (no additional investments were made during the year)
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.
Financial Statements and Closing Entries
The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2019, the end of the fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet, part of which follows:
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The Gorman Group |
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Adjusted |
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Account Title |
Dr. |
Cr. |
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Cash |
14,020 |
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30,530 |
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Supplies |
4,770 |
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Prepaid Insurance |
10,300 |
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Land |
108,000 |
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Buildings |
390,000 |
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127,100 |
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Equipment |
282,000 |
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Accumulated Depreciation-Equipment |
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165,500 |
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Accounts Payable |
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36,110 |
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Salaries Payable |
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3,580 |
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Unearned Rent |
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1,620 |
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Nicole Gorman, Capital |
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462,850 |
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Nicole Gorman, Drawing |
27,100 |
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Service Fees |
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514,920 |
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Rent Revenue |
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5,440 |
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Salaries Expense |
369,150 |
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Depreciation Expense—Equipment |
20,000 |
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Rent Expense |
16,800 |
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Supplies Expense |
11,880 |
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Utilities Expense |
10,730 |
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Depreciation Expense—Buildings |
7,160 |
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Repairs Expense |
5,910 |
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Insurance Expense |
3,240 |
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Miscellaneous Expense |
5,530 |
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1,317,120 |
1,317,120 |
Prepare a statement of owner's equity (no additional investments were made during the year).
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Gorman Group |
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