You are the bookkeeper at Furniture Ltd and are in the process of finalising the year end financials for 2022. The financial year-end is 30 June. The following information relating to the period between 1 July 2022 and 31 August 2022 has been brought to your attention: 1. 2. Furniture Ltd declared a dividend of R450 000 on 25 August 2022. Chair Ltd, a debtor owing Furniture Ltd an amount of R250 000 at 30 June 2022 had been experiencing financial difficulty. As a result, Furniture Ltd processed the following journal entry on 28 June 2022: Dr Credit losses R50 000 Cr Allowance for credit losses (Chairs Ltd) R50 000 In July 2022, the Chairs Ltd's lawyer confirmed that they would not be paying 40% of the outstanding debt. REQUIRED: Explain to management whether each of the events listed above, is an adjusting or non-adjusting event. In the case of an adjusting event, provide management with the appropriate journal entries. Journal narrations are not required. In the case of a non-adjusting event, explain to management whether any disclosure needs to be made in the notes of the financial statements of Furniture Ltd for the 20 June 2022 year end. Your answer needs to comply with IAS10- Events after the reporting period.
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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