The following are ledger balances extracted from the books of Forte Enterprise at 31 December 2019. RM Capital 200,000 Office furniture and equipment at cost 89,000 Provision for depreciation - office equipment 34,500 Bad debts 1,450 Purchases 480,000 Sales 645,000 Returns outwards 5,600 Return inwards 12,500 Carriage inwards 48,500 Carriage outwards 23,400 Salaries and wages 96,200 Stationery and printing 4,200 Lighting and heating charges 8,400 Telephone charges 7,200 Inventory 1 January 2019 62,000 Provision for doubtful debts - 1 January 2019 2,200 Drawings 25,000 Sales commission 12,900 Advertising charges 9,600 Office rent 33,000 Accounts receivable 72,500 Accounts payable 42,800 Bank overdraft 53,750 Additional information: Inventory at 31 December 2019: RM84, 000. Office furniture and equipment are to be depreciated at 10% per annum on cost. A trade debtor with an outstanding balance of RM3, 500 was declared bankrupt on 31 December 2019 and the amount owed by him is to be written off. Provision for doubtful debts is to be adjusted to 2% of the accounts receivable. Returns outwards amounting to RM1, 000 to a supplier was debited to his account but wrongly recorded as returns inwards by debiting his Returns account. Advertising charges include RM500 paid on 31 December 2019 for advertising made on 2 January 2020. Accrued expenses are: RM Salaries and wages 1,250 Lighting and heating charges 600 Telephone charges 550 Office rent 3,000 Bank overdraft interest 1,850 You are required to do the following: (a) Prepare: (i) A statement of profit and loss for the year ending 31 December 2019 (ii) A statement of financial position at 31 December 2019. (b) In your opinion, is the financial performance of Forte Enterprise for the year ended 31 December 2019 satisfactory? Discuss possible reasons for the figure obtained. What could have been done to improve the profitability of the business? Your combined answer to Part (b) should be not more than 500 words.
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.
The following are ledger balances extracted from the books of Forte Enterprise at 31 December 2019.
| RM | |
| Capital | 200,000 |
| Office furniture and equipment at cost | 89,000 |
| Provision for |
34,500 |
| 1,450 | |
| Purchases | 480,000 |
| Sales | 645,000 |
| Returns outwards | 5,600 |
| Return inwards | 12,500 |
| Carriage inwards | 48,500 |
| Carriage outwards | 23,400 |
| Salaries and wages | 96,200 |
| Stationery and printing | 4,200 |
| Lighting and heating charges | 8,400 |
| Telephone charges | 7,200 |
| Inventory 1 January 2019 | 62,000 |
| Provision for doubtful debts - 1 January 2019 | 2,200 |
| Drawings | 25,000 |
| Sales commission | 12,900 |
| Advertising charges | 9,600 |
| Office rent | 33,000 |
| 72,500 | |
| Accounts payable | 42,800 |
| Bank overdraft | 53,750 |
Additional information:
- Inventory at 31 December 2019: RM84, 000.
- Office furniture and equipment are to be depreciated at 10% per annum on cost.
- A trade debtor with an outstanding balance of RM3, 500 was declared bankrupt on 31 December 2019 and the amount owed by him is to be written off. Provision for doubtful debts is to be adjusted to 2% of the accounts receivable.
- Returns outwards amounting to RM1, 000 to a supplier was debited to his account but wrongly recorded as returns inwards by debiting his Returns account.
- Advertising charges include RM500 paid on 31 December 2019 for advertising made on 2 January 2020.
- Accrued expenses are:
| RM | |
| Salaries and wages | 1,250 |
| Lighting and heating charges | 600 |
| Telephone charges | 550 |
| Office rent | 3,000 |
| Bank overdraft interest | 1,850 |
You are required to do the following:
(a) Prepare:
(i) A statement of
(ii) A
(b) In your opinion, is the financial performance of Forte Enterprise for the year ended 31 December 2019 satisfactory? Discuss possible reasons for the figure obtained. What could have been done to improve the profitability of the business? Your combined answer to Part (b) should be not more than 500 words.
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