The following are extracts from the financial records of ABC Ltd for the year ended 31 August 2021. ABC Ltd Extract from the Statement of financial statement as at 31 August 2021 31 August 2021 31 August 2020 - R - R Bank 50 000 20 000 Inventories - trade goods 22 000 30 000 Trade receivables 77 000 69 000 Trade payables 44 000 46 000 Prepaid expenses: 1 800 1 200 Accrued expenses: interest 1 000 2 400 Accrued expenses; other 5 700 4 400 SARS – income tax payable 8 000 3 000 Dividends payable 1 500 2 700 ABC Ltd Extract from the Statement of profit or loss and other comprehensive income for the year ended 31 August 2021 Sales 592 000 Cost of sales (301 000) Gross profit 291 000 Profit on sale of Equipment 9 000 Depreciation 41 000 Interest expense 2 600 Income tax expense 15 200 Profit for the year 110 300 Additional information: 1. The dividends declared for the current year is R2 400.
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.
Required:
Prepare only the “
for ABC Ltd for the year ended 31 August 2021. Use the indirect method.
Show all workings. Where applicable, round off calculations to the nearest Rand.
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