Presented below are relevant extracts from Tank Corporation’s statement of financial position as of Dec. 31, 2021. Cash and cash equivalents P12,000,000 Trade and other receivables 38,000,000 Inventories 16,000,000 Other current assets 3,000,000 Trade and other payables 34,000,000 Short term borrowings 15,000,000 Other current liabilities 2,000,000 During the course of your audit, you noted the following. Cash and cash equivalents The following were included in Cash and cash equivalents: Customer’s check for P100,000 returned by bank on Dec. 29, 2021 due to insufficient fund but subsequently redeposited and cleared by the bank on Jan. 3, 2022. Customer’s check for P200,000 dated Jan. 2, 2022, received on Dec. 29, 2021. Cash earmarked for bonds payable due on June 30, 2022, P5,000,000. P1,000,000 of compensating balance against short-term borrowing arrangement at Dec. 31, 2021. The compensating balance is legally restricted as to withdrawal. Check written and dated Dec. 29, 2021 and delivered to payee on Jan. 2, 2022, P500,000. Check written on Dec. 27, 2021, dated Jan. 2, 2022, delivered to payee on Dec. 29, 2021, P800,000. One-year certificate of deposit, P2,000,000. Trade and other receivables The following were included in Trade and other receivables: Advances to an associate, P5,000,000. The settlement is neither planned nor likely to occur in the foreseeable future. Share subscriptions receivable due on March 31, 2022, P900,000. Accounts receivable used as collateral, P10,000,000. Inventories Not included in the physical count of inventory is P300,000 of merchandise purchased on Dec. 15. This merchandise was shipped f.o.b. shipping point on Dec. 29 and arrived on Jan. 3. The invoice arrived and was recorded on Jan. 3. Included in inventory is merchandise sold on Dec. 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for P400,000 on Dec. 31. The merchandise cost P320,000, and the customer received it on Jan. 3. Included in inventory was merchandise received on Dec. 31 with an invoice price of P600,000. The merchandise was shipped f.o.b destination. The invoice, which has not yet arrived, has not been recorded. Not included in inventory is P800,000 of merchandise purchased from a supplier. The merchandise was received on Dec. 31 after the inventory had been counted. The invoice was received and recorded on Dec. 30. Included in inventory was P700,000 of inventory held by Tank on consignment. Included in inventory is merchandise sold f.o.b. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for P750,000 on Dec. 31. The cost of this merchandise was P600,000, and the customer received the merchandise on Jan. 5. Required: Compute for the adjusted balance of the following accounts: Trade and other receivables Inventories Current assets
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.
Presented below are relevant extracts from Tank Corporation’s
|
Cash and cash equivalents |
P12,000,000 |
|
Trade and other receivables |
38,000,000 |
|
Inventories |
16,000,000 |
|
Other current assets |
3,000,000 |
|
Trade and other payables |
34,000,000 |
|
Short term borrowings |
15,000,000 |
|
Other current liabilities |
2,000,000 |
During the course of your audit, you noted the following.
Cash and cash equivalents
The following were included in Cash and cash equivalents:
- Customer’s check for P100,000 returned by bank on Dec. 29, 2021 due to insufficient fund but subsequently redeposited and cleared by the bank on Jan. 3, 2022.
- Customer’s check for P200,000 dated Jan. 2, 2022, received on Dec. 29, 2021.
- Cash earmarked for bonds payable due on June 30, 2022, P5,000,000.
- P1,000,000 of compensating balance against short-term borrowing arrangement at Dec. 31, 2021. The compensating balance is legally restricted as to withdrawal.
- Check written and dated Dec. 29, 2021 and delivered to payee on Jan. 2, 2022, P500,000.
- Check written on Dec. 27, 2021, dated Jan. 2, 2022, delivered to payee on Dec. 29, 2021, P800,000.
- One-year certificate of deposit, P2,000,000.
Trade and other receivables
The following were included in Trade and other receivables:
- Advances to an associate, P5,000,000. The settlement is neither planned nor likely to occur in the foreseeable future.
- Share subscriptions receivable due on March 31, 2022, P900,000.
- Accounts receivable used as collateral, P10,000,000.
Inventories
- Not included in the physical count of inventory is P300,000 of merchandise purchased on Dec. 15. This merchandise was shipped f.o.b. shipping point on Dec. 29 and arrived on Jan. 3. The invoice arrived and was recorded on Jan. 3.
- Included in inventory is merchandise sold on Dec. 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for P400,000 on Dec. 31. The merchandise cost P320,000, and the customer received it on Jan. 3.
- Included in inventory was merchandise received on Dec. 31 with an invoice price of P600,000. The merchandise was shipped f.o.b destination. The invoice, which has not yet arrived, has not been recorded.
- Not included in inventory is P800,000 of merchandise purchased from a supplier. The merchandise was received on Dec. 31 after the inventory had been counted. The invoice was received and recorded on Dec. 30.
- Included in inventory was P700,000 of inventory held by Tank on consignment.
- Included in inventory is merchandise sold f.o.b. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for P750,000 on Dec. 31. The cost of this merchandise was P600,000, and the customer received the merchandise on Jan. 5.
Required: Compute for the adjusted balance of the following accounts:
- Trade and other receivables
- Inventories
- Current assets
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