Analyzing Transactions and Adjustments Using the Financial Statement Effects Template On March 1, S. Penman launched AniFoods Inc., an organic foods retailing company. Following are the transactions for its first month of business. 1. S. Penman contributed $100,000 cash to the company in return for common stock. Penman also lent the company $55,000. This $55,000 note is due one year hence. 2. The company purchased equipment in the amount of $50,000, paying $10,000 cash and signing a note payable to the equipment manufacturer for the remaining balance. 3. The company purchased inventory for $80,000 cash in March. 4. The company had March sales of $100,000, of which $60,000 was for cash and $40,000 on credit. Total cost of goods sold for its March sales was $70,000. 5. The company purchased future advertising time from a local radio station for $10,000 cash. 6. During March, $7,500 worth of radio spots purchased in transaction 5 are aired. The remaining spots will be aired in April. 7. Employee wages earned and paid during March total $17,000 cash. 8. Prior to disclosing the financial statements, the company recognized that employees had earned an additional $1,000 in wages that will be paid in the next period. 9. The company recorded $2,000 of depreciation for March relating to its equipment. a. Record the effect of each transaction using the financial statement effects template. Note: For each account category, indicate the appropriate account name. Enter "N/A" for any account category that is not used for a given transaction. Note: Indicate a decrease in an account category by including a negative sign with the amount. Transaction 1. 2. 3. Cash Asset 100,000 0 0 Noncash Assets 0 = 0 = 0 = Balance Sheet Liabilities 0 0 0 Contrib. Capital 0 0 0 Earned Capital 0 0 0
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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