The balance sheet of Simpson Ltd at 30 June 2021 was as follows: Simpson Ltd Balance Sheet as at 30 June 2021 Assets Liabilities Cash 320,000 Accounts payable 151,000 Inventory 126,000 Rent payable 1,500 Accounts Receivable 130,500 Wages payable 5.500 Prepaid Insurance 1,000 Total current liabilities 158,000 Supplies 3,500 Loan 200,500 Total current asset 581,000 Total Liabilities 358,500 Equipment 89,000 Shareholders' Equity Accumulated depreciation (69,500) Share capital 100,000 Total Non Current Assets 19,500 600,500 Retained profits 142.000 Total Assets Total Shareholders' Equity 242,000 The following events occurred for Simpson Ltd during the month of July 2021: a) $85,000 of credit sales occurred during the month. This inventory cost Simpson Ltd $45,000 to purchase. b) On July 1st 2021, borrowed $180,000 from the bank. The loan is due on 30 June 2023 when the principal will be repaid in fullI. The loan carries an interest rate of 8 per cent per annum. An interest payment of $900 was made during the month of July 2021. c) Cash dividends of $6,000 declared of which $1,000 remained outstanding at the end of July. d) Received $15,000 from accounts receivable. ( e) Bought equipment for $80,000 paying cash on 1 July 2021. The annual rate of depreciation for equipment owned by Simpson Limited increased to $9,000 following this transaction. f) Received $10,000 for inventory to be delivered to a customer on 15 August 2021. g) Paid wages of $20,000 during the month, $5,500 of which were owed for the month of June. $4,000 remained outstanding to employees at the end of July. h) Paid $9,000 rent for the six-month period from 1 June 2021 to 30 November 2021 i) Paid an insurance policy worth $12,000 covering 1 August 2021 to 31 July 2022. Insurance is prepaid each year on 31 July. j) A physical count on 31 July shows that the ending balance of supplies is $2,000
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 an income statement for Simpson Ltd for the month ended 31 July 2021
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