J Wright, a sole trader, extracted the following trial balance from his books at the close of business on 31 March 20X9: Dr Cr £ £ Purchases and sales 61,420 127,245 Stock 1 April 20X8 7,940 Capital 1 April 20X8 25,200 Bank overdraft 2,490 Cash 140 Discounts 2,480 62 Returns inwards 3,486 Returns outwards 1,356 Carriage outwards 3,210 Rent and insurance 8,870 Provision for doubtful debts 630 Fixtures and fittings 1,900 Van 5,600 Debtors and creditors 12,418 11,400 Drawings 21,400 Wages and salaries 39,200 General office expenses 319 168,383 168,383 Notes: (a) Stock 31 March 20X9 £6,805. (b) Wages and salaries accrued at 31 March 20X9 £3,500; Office expenses owing £16. (c) Rent prepaid 31 March 20X9 £600. (d) Increase the provision for doubtful debts by £110 to £740. (e) Provide for depreciation as follows: Fixtures and fittings £190; Van £1,400. Required: Prepare the trading and profit and loss accounts for the year ended 31 March 20X9 together with a balance sheet as at that date
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.
J Wright, a sole trader, extracted the following
of business on 31 March 20X9:
Dr Cr
£ £
Purchases and sales 61,420 127,245
Stock 1 April 20X8 7,940
Capital 1 April 20X8 25,200
Bank overdraft 2,490
Cash 140
Discounts 2,480 62
Returns inwards 3,486
Returns outwards 1,356
Carriage outwards 3,210
Rent and insurance 8,870
Provision for doubtful debts 630
Fixtures and fittings 1,900
Van 5,600
Debtors and creditors 12,418 11,400
Drawings 21,400
Wages and salaries 39,200
General office expenses 319
168,383 168,383
Notes:
(a) Stock 31 March 20X9 £6,805.
(b) Wages and salaries accrued at 31 March 20X9 £3,500; Office expenses owing £16.
(c) Rent prepaid 31 March 20X9 £600.
(d) Increase the provision for doubtful debts by £110 to £740.
(e) Provide for depreciation as follows: Fixtures and fittings £190; Van £1,400.
Required:
Prepare the trading and
balance sheet as at that date
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