The following trial balance was extracted from the books of Mama Salim, a sole trader, as at 30 June 2015. Sh. Sh. Capital 25,054,200 Drawings 2,829,600 Debtors and creditors 10,587,200 7,092,400 Sales 116,148,400 Purchases 86,820,200 Rent and rates 776,000 Electricity 49,000 Salaries and wages 11,273,500 Provision for doubtful debts as 1 July 2014 434,900 Stock at 1 July 2014 12,654,800 Insurances 34,400 General expenses 786,600 Bank balance 2,116,400 Motor vehicles at cost 11,300,000 Provision for depreciation of motor vehicles at 1 July 2014 4,920,000 Proceeds of sale of motor vehicle 350,000 Motor vehicle expenses 772,200 Freehold premises at cost 14,000,000 153,999,900 153,999,900 Notes: Stock at 30 June 2015 was valued at Sh. 13,376,800. Electricity due on 30 June 2015 was Sh. 120,000. Prepaid rates and insurances amounted to Sh. 18,000 and Sh. 19,400 respectively as at 30 June 2015. Of the debtors, Sh. 167,200 are regarded as bad and the provision for doubtful debts is to be adjusted to 5% of the remaining debtors. Depreciation on motor vehicles is to be provided for at 20% per annum on the straight line method. Rent receivable at 30 June 2015 was Sh. 15,000. On 1 January 2015, a motor vehicle which had been purchased for Sh. 1,400,000 on 1 July 2011 was sold for Sh. 350,000. The only record of the transaction is the credit of Sh. 350,000 to the proceeds from the sale of motor vehicle account. Full depreciation is provided in the year of acquisition and none in the year of disposal. Required: Trading, profit and loss account for the year ended 30 June 2015. Balance sheet as at 30 June 2015
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
Sh. Sh.
Capital 25,054,200
Drawings 2,829,600
Debtors and creditors 10,587,200 7,092,400
Sales 116,148,400
Purchases 86,820,200
Rent and rates 776,000
Electricity 49,000
Salaries and wages 11,273,500
Provision for doubtful debts as 1 July 2014 434,900
Stock at 1 July 2014 12,654,800
Insurances 34,400
General expenses 786,600
Bank balance 2,116,400
Motor vehicles at cost 11,300,000
Provision for depreciation of motor vehicles at 1 July 2014 4,920,000
Proceeds of sale of motor vehicle 350,000
Motor vehicle expenses 772,200
Freehold premises at cost 14,000,000
153,999,900 153,999,900
Notes:
Stock at 30 June 2015 was valued at Sh. 13,376,800.
Electricity due on 30 June 2015 was Sh. 120,000.
Prepaid rates and insurances amounted to Sh. 18,000 and Sh. 19,400 respectively as at 30 June 2015.
Of the debtors, Sh. 167,200 are regarded as bad and the provision for doubtful debts is to be adjusted to 5% of the remaining debtors.
Depreciation on motor vehicles is to be provided for at 20% per annum on the straight line method.
Rent receivable at 30 June 2015 was Sh. 15,000.
On 1 January 2015, a motor vehicle which had been purchased for Sh. 1,400,000 on 1 July 2011 was sold for Sh. 350,000. The only record of the transaction is the credit of Sh. 350,000 to the proceeds from the sale of motor vehicle account. Full depreciation is provided in the year of acquisition and none in the year of disposal.
Required:
Trading,
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