he following transactions is available for Denton Limited as at 31 June 2021: Purchase Land for £40,000 A loan for £30,000 was taken from the bank Bought Inventory for £12,000 cash Sold Inventory for £27,000 cash Purchase motor vehicle for £10,000 cash Paid interest expenses on loan £2,500 Paid HMRC £5,500 corporation tax New shares for £50,000 were issued Received interest £500 on cash balance Paid £7,000 dividends to shareholders Required: Prepare a statement of cashflow for Denton Ltd for the period to 30 June 2021. You must classify the transactions under the main cashflow activities and state the net cash inflow/ outflow for the period. Outline what it tells the managers of Denton Limited about the business
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.
3. The following transactions is available for Denton Limited as at 31 June 2021:
Purchase Land for £40,000
A loan for £30,000 was taken from the bank
Bought Inventory for £12,000 cash
Sold Inventory for £27,000 cash
Purchase motor vehicle for £10,000 cash
Paid interest expenses on loan £2,500
Paid HMRC £5,500 corporation tax
New shares for £50,000 were issued
Received interest £500 on cash balance
Paid £7,000 dividends to shareholders Required:
Prepare a statement of cashflow for Denton Ltd for the period to 30 June 2021. You must classify the transactions under the main cashflow activities and state the net
Outline what it tells the managers of Denton Limited about the business
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