Dyer, Inc., completed its first year of operations on December 31, 2018. Because this is the end of the annual accounting period, the company bookkeeper prepared the following preliminary income statement: Income Statement, 2018 Rent Revenue $117,000 Expenses: Salaries and Wages Expense Repairs and Maintenance Expense Rent Expense Utilities Expense Travel Expense Total Expenses $29,100 13,600 9,600 4,600 3,600 60,500 Income $ 56,500 You are an independent CPA hired by the company to audit the firm's accounting systems and financial statements. In your audit, you developed additional data as follows: a. Wages for the last three days of December amounting to $370 were not recorded or paid. b. The $460 telephone bill for December 2018 has not been recorded or paid. c. Depreciation of equipment amounting to $23,600 for 2018 was not recorded. d. Interest of $560 was not recorded on the notes payable by Dyer, Inc. e. The Rental Revenue account includes $4,600 of revenue to be earned in January 2019. f. Supplies costing $660 were used during 2018, but this has not yet been recorded. g. The income tax expense for 2018 is $7,600, but it won't actually be paid until 2019.
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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