The following is the trial balance of Glory Enterprise as at 30 June 20X1: DR ($) CR ($) Sales 56,500 Sales returns 300 Cost of goods sold 11,000 Rent revenue 2,400 Sales salaries 4,500 Office salaries 3,500 Advertising 3,700 Water and electricity 900 Inventory – 30 June 20X1 6,000 Cash at bank 9,000 Furniture and fittings 10,500 Land and buildings 50,000 Accounts receivable 2,500 Accounts payable 4,300 Capital, Grace 41,700 Drawings, Grace 3,000 Total 104,900 104,900 Required: From the above trial balance, prepare the following two statements, properly classified (a) Profit and Loss Statement for the year ended 30 June 20X1. (b) Balance Sheet as at 30 June 20X1. (a) Glory Enterprise Trading, Profit & Loss Statement for the year ended 30 June 20X1 $ $ $ Sales Less: Cost of goods sold Gross Profit Add: Other revenues Less: Operating expenses Selling and distribution General and administrative Net profit (b) Glory Enterprise Balance Sheet as at 30 June 20X1 $ $ Owner’s equity Capital, Grace Represented by: Current Assets Less: Current Liabilities Working Capital Add: Non-current assets Property, Plant and Equipment Net Assets
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 is the
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DR ($) |
CR ($) |
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Sales |
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56,500 |
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Sales returns |
300 |
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Cost of goods sold |
11,000 |
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Rent revenue |
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2,400 |
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Sales salaries |
4,500 |
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Office salaries |
3,500 |
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Advertising |
3,700 |
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Water and electricity |
900 |
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Inventory – 30 June 20X1 |
6,000 |
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Cash at bank |
9,000 |
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Furniture and fittings |
10,500 |
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Land and buildings |
50,000 |
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Accounts receivable |
2,500 |
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Accounts payable |
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4,300 |
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Capital, Grace |
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41,700 |
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Drawings, Grace |
3,000 |
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Total |
104,900 |
104,900 |
Required:
From the above trial balance, prepare the following two statements, properly classified
(a)
(b) Balance Sheet as at 30 June 20X1.
(a) Glory Enterprise
Trading, Profit & Loss Statement for the year ended 30 June 20X1
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Sales |
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Less: Cost of goods sold |
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Gross Profit |
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Add: Other revenues |
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Less: Operating expenses |
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Selling and distribution |
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General and administrative |
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Net profit |
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(b) Glory Enterprise
Balance Sheet as at 30 June 20X1
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$ |
$ |
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Owner’s equity |
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Capital, Grace |
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Represented by: |
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Current Assets |
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Less: Current Liabilities |
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Add: Non-current assets |
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Property, Plant and Equipment |
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Net Assets |
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