In June 2021, Wanda Fonda organized a corporation to provide drone photography services. The company, called Drone Queen Inc., began operations immediately. Transactions during the month of June were as follows: June 1 The corporation issued 60,000 shares of capital stock to Wanda Fonda in exchange for $60,000 cash. June 2 Purchased a plane from Utility Aircraft for $220,000. Made a $40,000 cash down payment and issued a note payable for the remaining balance. June 4 Paid Piarco Airport $2,500 to rent office and hangar space for the month. June 15 Billed customers $8,320 for aerial photographs taken during the first half of June. June 15 Paid $5,880 in salaries earned by employees during the first half of June. June 18 Paid Henry's Hangar $1,890 for maintenance and repair services on the company plane. June 25 Collected $4,910 of the amounts billed to customers on June 15. June 30 Billed customers $16,450 for aerial photographs taken during the second half of the month. June 30 Paid $6,000 in salaries earned by employees during the second half of the month. June 30 Received a $2,510 bill from National Petroleum for aircraft fuel purchased in June. The entire amount is due July 10. June 30 Declared a $2,000 dividend payable on July 15 The account titles used by Drone Queen are: Cash Retained Earnings Accounts Receivable Dividends Aircraft Aerial Photography Revenue Notes Payable Maintenance Expense Accounts Payable Fuel Expense Dividends Payable Salaries Expense Capital Stock Rent Expense Instructions Prepare a trial balance dated June 30, 2021. Using figures from the trial balance prepared in part (c), compute total assets, total liabilities, and owners' equity. Are these the figures that the company will report in its June 30 balance sheet? Explain your answer briefly.
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.
In June 2021, Wanda Fonda organized a corporation to provide drone photography services. The company, called Drone Queen Inc., began operations immediately. Transactions during the month of June were as follows:
June 1 The corporation issued 60,000 shares of capital stock to Wanda Fonda in exchange for $60,000 cash.
June 2 Purchased a plane from Utility Aircraft for $220,000. Made a $40,000 cash down payment and issued a note payable for the remaining balance.
June 4 Paid Piarco Airport $2,500 to rent office and hangar space for the month.
June 15 Billed customers $8,320 for aerial photographs taken during the first half of June.
June 15 Paid $5,880 in salaries earned by employees during the first half of June.
June 18 Paid Henry's Hangar $1,890 for maintenance and repair services on the company plane.
June 25 Collected $4,910 of the amounts billed to customers on June 15.
June 30 Billed customers $16,450 for aerial photographs taken during the second half of the month.
June 30 Paid $6,000 in salaries earned by employees during the second half of the month.
June 30 Received a $2,510 bill from National Petroleum for aircraft fuel purchased in June. The entire amount is due July 10.
June 30 Declared a $2,000 dividend payable on July 15
The account titles used by Drone Queen are:
Cash Retained Earnings
Accounts Receivable Dividends
Aircraft Aerial Photography Revenue
Notes Payable Maintenance Expense
Accounts Payable Fuel Expense
Dividends Payable Salaries Expense
Capital Stock Rent Expense
Instructions
- Prepare a
trial balance dated June 30, 2021. - Using figures from the trial balance prepared in part (c), compute total assets, total liabilities, and owners' equity. Are these the figures that the company will report in its June 30 balance sheet? Explain your answer briefly.
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