The hypothetical company XYZ Inc started its operations in 2020. On December 31 2020, it had the following adjusted trial balance: Account Balance ($) Notes Payable 20,000 Wages Payable 8,000 Additional Paid In Capital 300,000 Common Stock at par value 60,000 A/P 60,000 PP&E (at cost) 110,000 Inventory 62,000 Cash 419,000 Unearned Revenues 10,000 Accumulated Depreciation 10,000 Account Receivables ? Retained Earnings 230,000 During 2021 the following transactions occurred: A dividend of $20,000 was declared during 2021. These dividends will be paid in 2022. During the year the company performed and delivered services and billed its clients for $900,000. Collections from customers were $800,000. In addition to the transactions described in items 3 above, products were shipped to the customers who paid $10,000 in advance (see December 31, 2020 balances). The selling price was $80,000 and the customer paid the balance in 2021. The company purchased $350,000 worth of inventory, on account. Payments on accounts payable were $200,000. Miscellaneous expenses in the amount of $24,000 were paid in cash Based on a physical count, inventory balance as of December 31, 2020 was $71,000. The employees earned $200,000 as wages. Cash wage payments to employees were $190,000. Additional PP&E worth $30,000 was purchased in cash. Depreciation for the year equals $10,000. 10,000 shares at par value of $1 were issued and sold for $20 per share. The note worth of $20,000 was paid with an additional Interest expense of $200. The company incurred $24,000 in rent expenses and paid $22,000 of it. The company calculated its tax obligations for 2021. Tax in the amount of $40,000 is due for the entire year of which $30,000 was paid in the previous quarters of 2021. Prepare Income Statement for 2021 Revenues COGS Wages Expense Depreciation Expense Interest Expense Rent Expense Miscellaneous Expenses Tax Expense NET INCOME
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 hypothetical company XYZ Inc started its operations in 2020. On December 31 2020, it had the following adjusted
|
Account |
Balance ($) |
|
Notes Payable |
20,000 |
|
Wages Payable |
8,000 |
|
Additional Paid In Capital |
300,000 |
|
Common Stock at par value |
60,000 |
|
A/P |
60,000 |
|
PP&E (at cost) |
110,000 |
|
Inventory |
62,000 |
|
Cash |
419,000 |
|
Unearned Revenues |
10,000 |
|
Accumulated |
10,000 |
|
|
? |
|
|
230,000 |
|
|
|
During 2021 the following transactions occurred:
- A dividend of $20,000 was declared during 2021. These dividends will be paid in 2022.
- During the year the company performed and delivered services and billed its clients for $900,000. Collections from customers were $800,000.
- In addition to the transactions described in items 3 above, products were shipped to the
customers who paid $10,000 in advance (see December 31, 2020 balances). The selling price was $80,000 and the customer paid the balance in 2021.
- The company purchased $350,000 worth of inventory, on account. Payments on accounts
payable were $200,000.
- Miscellaneous expenses in the amount of $24,000 were paid in cash
- Based on a physical count, inventory balance as of December 31, 2020 was $71,000.
- The employees earned $200,000 as wages. Cash wage payments to employees were $190,000.
- Additional PP&E worth $30,000 was purchased in cash. Depreciation for the year equals $10,000.
- 10,000 shares at par value of $1 were issued and sold for $20 per share.
- The note worth of $20,000 was paid with an additional Interest expense of $200.
- The company incurred $24,000 in rent expenses and paid $22,000 of it.
- The company calculated its tax obligations for 2021. Tax in the amount of $40,000 is due for the entire year of which $30,000 was paid in the previous quarters of 2021.
Prepare Income Statement for 2021
Revenues
COGS
Wages Expense
Depreciation Expense
Interest Expense
Rent Expense
Miscellaneous Expenses
Tax Expense
NET INCOME
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