Ex5.22 The following transactions of Larson Services Inc. occurred during August 2019, its first month of operations. Aug. 1 Issued common stock for $3,000 cash 1 Borrowed $10,000 cash from the bank 1 Paid $8,000 cash for a used truck 4 Paid $600 for a one–year truck insurance policy effective August 1 (record as an asset) 5 Collected $2,000 fees from a client for work to be performed at a later date 7 Billed a client $5,000 for services performed today 9 Paid $250 for supplies purchased and used today 12 Purchased $500 of supplies on credit (record as an asset) 15 Collected $1,000 of the amount billed August 7 16 Paid $200 for advertising in The News during the first two weeks of August 20 Paid $250 of the amount owing for supplies purchased on August 12 25 Paid the following expenses: rent for August, $350; salaries, $2,150; telephone, $50; truck operating, $250 28 Called clients about payment of the balances owing from August 7 29 Billed a client $6,000 for services performed today, including $1,500 related to cash received August 5 31 Transferred $50 of August’s prepaid expenses to insurance expense 31 Counted $100 of supplies still on hand (recorded the amount used as an expense) Required: 1. Record the above transactions on a transactions worksheet and calculate the total of each column at the end of August. Use the following headings on your worksheet. 2. Prepare an income statement and statement of changes in equity for the month ended August 31, 2019, and a balance sheet at August 31, 2019. Identify the revenue earned as Fees. Record the expenses in alphabetical order
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.
Ex5.22
The following transactions of Larson Services Inc. occurred during August 2019, its first month of
operations.
Aug. 1 Issued common stock for $3,000 cash
1 Borrowed $10,000 cash from the bank
1 Paid $8,000 cash for a used truck
4 Paid $600 for a one–year truck insurance policy effective August 1 (record as an asset)
5 Collected $2,000 fees from a client for work to be performed at a later date
7 Billed a client $5,000 for services performed today
9 Paid $250 for supplies purchased and used today
12 Purchased $500 of supplies on credit (record as an asset)
15 Collected $1,000 of the amount billed August 7
16 Paid $200 for advertising in The News during the first two weeks of August
20 Paid $250 of the amount owing for supplies purchased on August 12
25 Paid the following expenses: rent for August, $350; salaries,
$2,150; telephone, $50; truck operating, $250
28 Called clients about payment of the balances owing from August 7
29 Billed a client $6,000 for services performed today, including $1,500 related to cash received
August 5
31 Transferred $50 of August’s prepaid expenses to insurance expense
31 Counted $100 of supplies still on hand (recorded the amount used as an expense)
Required:
1. Record the above transactions on a transactions worksheet and calculate the total of each
column at the end of August. Use the following headings on your worksheet.
2. Prepare an income statement and statement of changes in equity for the month ended August
31, 2019, and a
the expenses in alphabetical order
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