On November 1, the Trail Balance for Nevada Company showed the following balances: Cash $20,000 Machinery Accounts Payable Accrued payroll 30,000 $15,500 Accounts Receivable 25,000 Finished Goods 9,500 4,500 2,250 60,000 21,250 Work in Process Common Stocks Materials 10,000 Retained Earnings For the November, the following transactions occurred: a) Materials purchased on account, $49,000. b) Direct materials of $29,000 were requisitioned, along with indirect materials of $9,500. c) Payroll paid $85,000 after deduction of 8% Income Tax and 7% FICA tax. The liability for employer payroll taxes includes similar rate of FICA tax and 3% Federal Insurance. The payroll consisted of 15% office salaries, 10% sales salaries, and 27% indirect labor. d) Factory overhead is applied at a rate of 105% of direct labor cost. e) Expenses incurred on repairing machinery amounting to $ 14,600. f) Materials costing $1,265 were defective and were returned to the supplier g) Payments made to vendors on account, $31,500 h) Various factory overhead expenses totaled $12,500, including $1,400 depreciation on factory machinery and $ 2,600 on expired insurance cost for the month. Cash overhead are still payable. i) Work in Process in hand on Nov 30 is 15,500. j) Finished Goods in hand on Nov 30 is 21,000. Goods have been sold for 30% markup on sales prices. Required: Prepare Journal entries for above transaction and the two Factory Overhead Accounts, the transfer of over or under applied FOH and closing of FOH account.
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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