Assume the following: Lomo Engineering Company had the following transactions: Jan-01 Issued capital stock for $965,000. Jan-01 Purchased a Packaging Equipment for $20,000. Jan-01 Purchased an Insurance Policy (1 year) for $30,000. Jan-03 Purchased a Machine, paying $15,000 in cash and issuing a note of $20,000. Jan-05 Purchased $28,000 of inventory on account. Jan-07 Sold inventory costing $6,000 for $50,000 on account. Jan-11 Paid $2,000 for inventory purchased on account (from Jan-05). Jan-15 Collect $12,550 of accounts receivable from customers (from Jan-07). Jan-17 Paid utility bills totaling $1,500. Jan-23 Paid wages for $13,000. Jan-25 Collect $8,000 in bank interest. Jan-30 Paid $12,590 due to income taxes. Chart of Accounts for Lomo Engineering Company Assets: 101 Cash 105 Accounts Receivable 110 Note Receivable 115 Inventory 120 Prepaid Insurance 125 Warehouse Building 130 Equipment Liabilities: 201 Account Payable 205 Note Payable 210 Wages Payable 215 Loan Payable 220 Interest Payable Owners’ Equity: 301 Capital Stock 310 Dividends Revenues: 401 Sales Revenue 405 Interest Revenue Expenses: 501 Cost of Goods Sold 505 Wages Expense 510 Utilities Expense 515 Insurance Expense 520 Income Tax Expense 530 Depreciation Expense = Historical cost – Salvage Value / useful life Required: Prepare Income Statement. Prepare Retained Earnings Prepare Balance
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.
Assume the following: Lomo Engineering Company had the following transactions:
Jan-01 Issued capital stock for $965,000.
Jan-01 Purchased a Packaging Equipment for $20,000.
Jan-01 Purchased an Insurance Policy (1 year) for $30,000.
Jan-03 Purchased a Machine, paying $15,000 in cash and issuing a note of
$20,000.
Jan-05 Purchased $28,000 of inventory on account.
Jan-07 Sold inventory costing $6,000 for $50,000 on account.
Jan-11 Paid $2,000 for inventory purchased on account (from Jan-05).
Jan-15 Collect $12,550 of
Jan-17 Paid utility bills totaling $1,500.
Jan-23 Paid wages for $13,000.
Jan-25 Collect $8,000 in bank interest.
Jan-30 Paid $12,590 due to income taxes.
Chart of Accounts for Lomo Engineering Company
Assets:
|
101 |
Cash |
|
105 |
Accounts Receivable |
|
110 |
Note Receivable |
|
115 |
Inventory |
|
120 |
Prepaid Insurance |
|
125 |
Warehouse Building |
|
130 |
Equipment |
|
Liabilities: |
|
|
201 |
Account Payable |
|
205 |
Note Payable |
|
210 |
Wages Payable |
|
215 |
Loan Payable |
|
220 |
Interest Payable |
Owners’ Equity:
301 Capital Stock
310 Dividends
Revenues:
401 Sales Revenue
405 Interest Revenue
Expenses:
|
501 |
Cost of Goods Sold |
|
505 |
Wages Expense |
|
510 |
Utilities Expense |
|
515 |
Insurance Expense |
|
520 |
Income Tax Expense |
|
530 |
Salvage Value / useful life |
Required:
- Prepare Income Statement.
- Prepare
Retained Earnings - Prepare Balance
- Prepare a Cash Flow Statement
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