The selected accounts from the unadjusted trial balance of “Federation Garden Supplies” are presented below as at 30 June 2020. Dr ($) Cr ($) Cash at Bank 13,690 Garden Supplies 42,000 Accounts Receivable 39,000 Prepaid Insurance 24,000 Machinery 45,000 Accumulated depreciation - Machinery 8,500 Office Equipment 16, 000 Accumulated depreciation - Office Equipment 3,200 Intangible asset - Patent 40,000 Note Payable (due in 2025) 30,000 Sales 512, 000 Sales Returns 6, 000 Sales discount 1,400 Interest Revenue 14, 000 Cost of Sales 317, 000 Freight-out 2, 000 Rent Expense (for administration department) 12, 200 Salaries Expense (50% selling and 50% administrative) 61, 000 Sales Commissions Expense 1,500 Electricity Expense (for administration department) 4,500 Adjustment data: i.The amount in “Prepaid Insurance” represents a one year premium which was paid on 1 January, 2020 (note that 50% of insurance relates to selling and 50% administrative). ii.Depreciation on all Machinery and Office Equipment is 20 % per year using the reducing balance method. iii.6 % annual interest is due on the note payable. iv.Salaries owing which remain unpaid amounted to $2,300. v.The patent was only acquired on 1 July, 2019 and it has a useful life of 20 years. vi.Accrued interest revenue amounts to $2,000. vii.Bad debts are expected to be 2% of accounts receivable. There has been no prior provision made for this expense in the books. viii.A physical stock-take reveals that Garden Supplies on hand amounted to $41,500. Required: Prepare a fully classified Income Statement for the year ending 30 June 2020.
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.
The selected accounts from the unadjusted
are presented below as at 30 June 2020.
Dr ($) Cr ($)
Cash at Bank 13,690
Garden Supplies 42,000
Accounts Receivable 39,000
Prepaid Insurance 24,000
Machinery 45,000
Accumulated depreciation - Machinery 8,500
Office Equipment 16, 000
Accumulated depreciation - Office Equipment 3,200
Intangible asset - Patent 40,000
Note Payable (due in 2025) 30,000
Sales 512, 000
Sales Returns 6, 000
Sales discount 1,400
Interest Revenue 14, 000
Cost of Sales 317, 000
Freight-out 2, 000
Rent Expense (for administration department) 12, 200
Salaries Expense (50% selling and 50%
administrative)
61, 000
Sales Commissions Expense 1,500
Electricity Expense (for administration department) 4,500
Adjustment data:
i.The amount in “Prepaid Insurance” represents a one year premium which was paid on 1
January, 2020 (note that 50% of insurance relates to selling and 50% administrative).
ii.Depreciation on all Machinery and Office Equipment is 20 % per year using the
balance method
iii.6 % annual interest is due on the note payable.
iv.Salaries owing which remain unpaid amounted to $2,300.
v.The patent was only acquired on 1 July, 2019 and it has a useful life of 20 years.
vi.Accrued interest revenue amounts to $2,000.
vii.Bad debts are expected to be 2% of accounts receivable. There has been no prior
provision made for this expense in the books.
viii.A physical stock-take reveals that Garden Supplies on hand amounted to $41,500.
Required:
Prepare a fully classified Income Statement for the year ending 30 June 2020.
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