CQL Company began operations on January 1, 2021. The company reported the following data which constitute a condensed description of the business for the first year of operation ending December 31,2021. Cash sales P 1,800,000 Sales on account 2,000,000 Collection from customers 1,600,000 Cash purchases 400,000 Purchases on account 2,500,000 Payments to trade creditors 1,300,000 Salaries paid 700,000 Office supplies paid 400,000 Other expenses paid 80,000 Interest received 50,000 Equipment 600,000
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.
CQL Company began operations on January 1, 2021. The company reported the following data which constitute a condensed description of the business for the first year of operation ending December 31,2021.
|
Cash sales |
P 1,800,000 |
|
Sales on account |
2,000,000 |
|
Collection from customers |
1,600,000 |
|
Cash purchases |
400,000 |
|
Purchases on account |
2,500,000 |
|
Payments to trade creditors |
1,300,000 |
|
Salaries paid |
700,000 |
|
Office supplies paid |
400,000 |
|
Other expenses paid |
80,000 |
|
Interest received |
50,000 |
|
Equipment |
600,000 |
The equipment was acquired by CQL on January 1 and has an estimated useful life of 8 years with no residual value.
The following are additional information provided by CQL company on December 31:
- Accrued salaries amounted to P90,000
- It is estimated that P50,000 of the outstanding
accounts receivable may not be collected on December 31, 2021. - Unused office supplies also amounted to P 30,000.
- Accrued interest receivable was P5,000.
- The ending inventory on December 31, 2021 amounted to P500,000.
Prepare the Comparative Income Statement for cash and accrual.
The picture below is the format for this question.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
