repare the adjusting entries needed as of December 2020. Write your solutions as description/explanation in each entry. The account names are given below. 1. The balance of the supplies account is a debit of P34,125. The inventory of supplies on December 31 amount s to P14,220. 2. The insurance expense account has a debit balance of P11,700 which represent a one-year premium paid in advance on August 1. 3. The balance of the prepaid rent account is a debit balance of P40,500 which represent 6-month rent received in advance on October 1. 4. Subscription income has a credit balance of P7,020 which represent a one-year subscription to a monthly magazine received in advance on May 31. 5. The advertising expense account includes a debit of P37,024 which represent the cost of advertising contract to publish the company ad in 52 consecutive issues of a weekly magazine. As of December 31, advertisements had appeared in 24 issues already. 6. The balance of the equipment account is a debit balance of P117,600, which represent the cost of equipment purchased at the beginning of the year. The equipment was estimated to have a life of 15 years with the residual value of P9,600. 7. An automobile was acquired on June 1 at a cost of P1,440,000. This automobile was estimated to have a life of 8 years with a salvage value of P180,000. 8. Assume that on December 31, 2020, the end of the company’s accounting period, the company has outstanding Account Receivable of P300,000. The company estimates that 6% of the receivables might not be collected. The allowance for bad debts has a debit balance of P11,000 before adjustment. 9. Management fees of P432,000 were collected for one year in advance on April 1. These are credited to Unearned Management Fees when received. 10. The company pays a total of P18,000 every Friday for a 5-day work week ending Friday. Assume that the last day of the year falls on Wednesday
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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