On December 31, 2019, Clean and White Linen Supplies Ltd. had the following account balances: Cash S90,000 Accumulated Depreciation, Equipment S90,000 Accounts Receivable 96,000 Accounts Payable 60,000 Inventory 60,000 Wages Payable 8,000 Supplies 2,000 Bank Loan Payable 150,000 Long-Term Investment 80,000 Common Shares 250,000 Equipment 330,000 Retained Earnings 100,000 In 2020, the following transactions occurred: On January 1, paid S4,200 for a three-year fire insurance policy. 1. 2. Purchased additional uniform inventory on credit for $147,100. Sold uniforms for S192,100 on account. The inventory that was sold had been purchased for $100,000. 3. Performed cleaning services for customers for $544,400. One-quarter of this amount was paid in cash and the remainder was on account. 4. 5. Paid S139,200 to suppliers to settle some of the accounts payable. 6. Received $246,000 from customers to settle amounts owed to the company. 7. Paid $15,200 for advertising. At the end of 2020, paid the interest on the bank loan for the year at the rate of 7%, as well as S34,500 on the principal. The remaining principal balance is due in three years. 8. 9. Received a $3,000 dividend from the long-term investment. 10. Paid S19,800 for utilities for the year. 11. Declared and paid dividends of $13,100 at the end of the year. 12. Paid S102,000 for wages during the year. At year end, the company owed another $2,000 to the employees for the last week of work in December. Depreciated the equipment for the year. The company had bought its equipment at the beginning of 2017, and it was expected to last 10 years and have a residual value of S30,000. The company depreciates its equipment using the straight-line method. 13. 14. Made an adjustment for the cost of the insurance that expired in 2020. Prepare a statement of financial position for 2020. (LIst Current Assets In order of liguldity.)
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.
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