PREPARE A PROPER INCOME STATEMENT On December 1, 2020, Sheridan Distributing Company had the following account balances. Debit Credit Cash $7,500 Accumulated Depreciation—Equipment $2,640 Accounts Receivable 4,900 Accounts Payable 4,500 Inventory 12,200 Salaries and Wages Payable 1,000 Supplies 1,300 Owner’s Capital 44,160 Equipment 26,400 $52,300 $52,300 During December, the company completed the following summary transactions. Dec. 6 Paid $1,800 for salaries and wages due employees, of which $800 is for December and $1,000 is for November salaries and wages payable. 8 Received $1,900 cash from customers in payment of account (no discount allowed). 10 Sold merchandise for cash $6,500. The cost of the merchandise sold was $3,900. 13 Purchased merchandise on account from Boehm Co. $9,000, terms 2/10, n/30. 15 Purchased supplies for cash $1,600. 18 Sold merchandise on account $12,800, terms 3/10, n/30. The cost of the merchandise sold was $8,300. 20 Paid salaries and wages $1,700. 23 Paid Boehm Co. in full, less discount. 27 Received collections in full, less discounts, from customers billed on December 18.
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.
PREPARE A PROPER INCOME STATEMENT
On December 1, 2020, Sheridan Distributing Company had the following account balances.
|
Debit
|
Credit
|
|||||
| Cash | $7,500 | $2,640 | ||||
| Accounts Receivable | 4,900 | Accounts Payable | 4,500 | |||
| Inventory | 12,200 | Salaries and Wages Payable | 1,000 | |||
| Supplies | 1,300 | Owner’s Capital | 44,160 | |||
| Equipment | 26,400 |
|
||||
| $52,300 | $52,300 |
During December, the company completed the following summary transactions.
| Dec. 6 | Paid $1,800 for salaries and wages due employees, of which $800 is for December and $1,000 is for November salaries and wages payable. | |
| 8 | Received $1,900 cash from customers in payment of account (no discount allowed). | |
| 10 | Sold merchandise for cash $6,500. The cost of the merchandise sold was $3,900. | |
| 13 | Purchased merchandise on account from Boehm Co. $9,000, terms 2/10, n/30. | |
| 15 | Purchased supplies for cash $1,600. | |
| 18 | Sold merchandise on account $12,800, terms 3/10, n/30. The cost of the merchandise sold was $8,300. | |
| 20 | Paid salaries and wages $1,700. | |
| 23 | Paid Boehm Co. in full, less discount. | |
| 27 | Received collections in full, less discounts, from customers billed on December 18. |
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