Chulu own a retail shop. The following information is available from the few records kept for the beginning and end of 2020. 1 January 31 December K K Cash in shop till 350 250 Bank overdraft 800 300 Inventory 2,600 3,300 Owed by customers 4,500 5,100 Owed to suppliers 1,450 1,900 Loan from wife 4,000 2,000 Notes: (a) Chulu tells you that during 2020 he took from the till, before making the weekly bankings: (i) K200 a week for personal expenses and (ii) K80 a week for his assistant’s wages. (b) Returned cheques show that all payments out of the bank account were to suppliers except: (i) A payment of K250 to an insurance company, being K150 for the insurance of the shop’s contents and K100 for the insurance of Chulu’s own house, and (ii) A payment of K600 for furniture for Chulu’s own house © During the year Chulu had paid business expenses of K3,100 through his private bank account. (c) Although no record of it is kept, Chulu owned the shop purchased on 1January 1996 for K40,000 and shop fittings and fixtures purchased on the same date for K6,000. It is agreed that fair rates of depreciation are 5 per cent per annum on cost for the shop and 10 per cent per annum on cost for the fittings and fixtures. REQUIRED: (a) Calculate Chulu’s income for 2020. (b) Compile a statement of the financial position of this business on 31 December 2020.
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.
Chulu own a retail shop. The following information is available from the few records kept for the beginning and end of 2020.
1 January 31 December
K K
Cash in shop till 350 250
Bank overdraft 800 300
Inventory 2,600 3,300
Owed by customers 4,500 5,100
Owed to suppliers 1,450 1,900
Loan from wife 4,000 2,000
Notes:
(a) Chulu tells you that during 2020 he took from the till, before making the weekly bankings: (i) K200 a week for personal expenses and (ii) K80 a week for his assistant’s wages. (b) Returned cheques show that all payments out of the bank account were to suppliers except: (i) A payment of K250 to an insurance company, being K150 for the insurance of the shop’s contents and K100 for the insurance of Chulu’s own house, and (ii) A payment of K600 for furniture for Chulu’s own house
© During the year Chulu had paid business expenses of K3,100 through his private bank account.
(c) Although no record of it is kept, Chulu owned the shop purchased on 1January 1996 for K40,000 and shop fittings and fixtures purchased on the same date for K6,000. It is agreed that fair rates of
REQUIRED:
(a) Calculate Chulu’s income for 2020. (b) Compile a
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