Below are the Profit and Loss Statement and Balance Sheet for the business after 12 months of operations. Kane needs your help to check and prepare the corrected classified Balance Sheet. Profit and Loss Statement as at 31 December 2021 $ $ $ Course Fees Revenue 25,700 Unearned Revenue 4,000 Sales Revenue 105,500 135,200 Less: Cost of Goods Sold 43,000 Gross Profit 92,200 Less: Operating Expense Selling Expense Salaries Expense (refer to Note 1) 55,000 Accrued Expense 1,000 56,000 General and Administrative Expense Salesmen Commission 15,500 Interest Expense 2,750 Roadshow Expense 19,000 Depreciation – Office Equipment 10,000 47,250 Financial Expense Prepaid Expense 13,100 Telephone Expense 2,400 15,500 118,750 Net Loss 26,550 Balance Sheet for the year ended 31 December 2021 Equity $ $ $ Capital 65,000 Less: Net Profit 26,550 Less: Drawings 7,000 31,450 Represented by: Current Assets Cash at Bank 27,200 Inventories 44,000 Creditors 27,350 Office Equipment 30,000 Add: Accumulated Depreciation – Office Equipment 10,000 40,000 138,550 Less: Current Liabilities Loan from OCBC (refer to Note 2) 40,000 Shares in Keppel 9,000 49,000 Working Capital 89,550 Non-Current Assets Accrued Revenue 600 Total Assets 90,150 Note 1: 20% of the salaries are for salesmen and the remaining are for office staff. Note 2: Bank loan of $4,000 is due on 17 August 2022. The balance is due on 25 June 2024.
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.
Below are the
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Profit and Loss Statement as at 31 December 2021 |
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|
$ |
$ |
$ |
|
Course Fees Revenue |
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25,700 |
|
|
Unearned Revenue |
|
4,000 |
|
|
Sales Revenue |
|
105,500 |
135,200 |
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Less: Cost of Goods Sold |
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|
43,000 |
|
Gross Profit |
|
|
92,200 |
|
|
|
|
|
|
Less: Operating Expense |
|
|
|
|
Selling Expense |
|
|
|
|
Salaries Expense (refer to Note 1) |
55,000 |
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|
|
Accrued Expense |
1,000 |
56,000 |
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|
|
|
|
|
|
General and Administrative Expense |
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|
|
|
Salesmen Commission |
15,500 |
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|
|
Interest Expense |
2,750 |
|
|
|
Roadshow Expense |
19,000 |
|
|
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Depreciation – Office Equipment |
10,000 |
47,250 |
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|
|
|
|
|
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Financial Expense |
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|
|
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Prepaid Expense |
13,100 |
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Telephone Expense |
2,400 |
15,500 |
118,750 |
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Net Loss |
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26,550 |
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Balance Sheet for the year ended 31 December 2021 |
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Equity |
$ |
$ |
$ |
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Capital |
|
|
65,000 |
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Less: Net Profit |
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|
26,550 |
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Less: Drawings |
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|
7,000 |
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|
31,450 |
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Represented by: |
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|
|
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Current Assets |
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|
|
|
Cash at Bank |
|
27,200 |
|
|
Inventories |
|
44,000 |
|
|
Creditors |
|
27,350 |
|
|
Office Equipment |
30,000 |
|
|
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Add: |
10,000 |
40,000 |
|
|
|
|
138,550 |
|
|
Less: Current Liabilities |
|
|
|
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Loan from OCBC (refer to Note 2) |
40,000 |
|
|
|
Shares in Keppel |
9,000 |
49,000 |
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|
|
|
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89,550 |
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Non-Current Assets |
|
|
|
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Accrued Revenue |
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|
600 |
|
|
|
|
|
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Total Assets |
|
|
90,150 |
Note 1: 20% of the salaries are for salesmen and the remaining are for office staff.
Note 2: Bank loan of $4,000 is due on 17 August 2022. The balance is due on 25 June 2024.
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