The trial balance and additional information given below was obtained from the records of Vancouver Traders on 28 February 2020, the end of the financial year. REQUIRED Use the trial balance, adjustments and additional information to prepare the Income statement for the year ended 28 February 2020 Vancouver Traders PRE-ADJUSTMENT TRIAL BALANCE ON 28 FEBRUARY 2020 Balance sheet accounts section Debit Credit Capital 1 300 000 Drawings 96 000 Land and Buildings 912 000 Vehicles at Cost 672 000 Equipment at Cost 480 000 Accumulated Depreciation on Vehicles 384 000 Accumulated Depreciation on Equipment 168 800 Fixed deposit: Fin Bank (9% p.a.) 144 000 Trading inventory 123 000 Debtors control 142 420 Provision for Bad Debts 7 200 Bank 59 944 Cash Float 7 200 Creditors Control 133 344 Mortgage Loan Fin Bank (12%) 240 000 Nominal Accounts Section Sales 1 510 320 Cost of sales 432 000 Sales returns 9 600 Salaries and wages 427 200 Bad debts 13 400 Stationery 21 800 Rates and Taxes 57 100 Motor expenses 96 000 Repairs to building 17 200 Telephone 32 400 Electricity and water 48 500 Bank charges 6 000 Insurance 62 300 Interest on mortgage loan 19 200 Interest on Fixed Deposit 10 800 Rent Income 124 800 Adjustments and additional information 1. The telephone account for February 2020 has not yet been paid, R3 000. 2. A debtor, P. Sellers, was declared insolvent. His insolvent estate paid 40% of his debt of R2 000 and this has been recorded. The balance of his account must now be written off. 3. Stocktaking on 28 February 2020 revealed the following stocks on hand: Trading inventory R120 000 Stationery R800 4. The provision for bad debts must be adjusted to R6 800. 5. Rent has only been received up to 31 December 2019. Provide for the outstanding rent. 6. The insurance total includes an annual insurance premium of R6 000 that was paid for the period 01 September 2019 to 31 August 2020. 7. Provide for outstanding interest on the mortgage loan, R9 600. 8. Provide for outstanding interest on fixed deposit. The investment in fixed deposit was made on 01 March 2019 and matures on 31 August 2020. 9. The credit purchase of a new battery for the motor vehicle has not been recorded, R500. 10. Provide for depreciation as follows: On equipment at 15% p.a. on cost. On vehicles at 20% p.a. using the diminishing balance method
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.
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REQUIRED
Use the trial balance, adjustments and additional information to prepare the Income statement for the year ended 28 February 2020
Vancouver Traders
PRE-ADJUSTMENT TRIAL BALANCE ON 28 FEBRUARY 2020
Balance sheet accounts section
Debit
Credit
Capital
1 300 000
Drawings
96 000
Land and Buildings
912 000
Vehicles at Cost
672 000
Equipment at Cost
480 000
384 000
Accumulated Depreciation on Equipment
168 800
Fixed deposit: Fin Bank (9% p.a.)
144 000
Trading inventory
123 000
Debtors control
142 420
Provision for
7 200
Bank
59 944
Cash Float
7 200
Creditors Control
133 344
Mortgage Loan Fin Bank (12%)
240 000
Nominal Accounts Section
Sales
1 510 320
Cost of sales
432 000
Sales returns
9 600
Salaries and wages
427 200
Bad debts
13 400
Stationery
21 800
Rates and Taxes
57 100
Motor expenses
96 000
Repairs to building
17 200
Telephone
32 400
Electricity and water
48 500
Bank charges
6 000
Insurance
62 300
Interest on mortgage loan
19 200
Interest on Fixed Deposit
10 800
Rent Income
124 800
Adjustments and additional information
1. The telephone account for February 2020 has not yet been paid, R3 000.
2. A debtor, P. Sellers, was declared insolvent. His insolvent estate paid 40% of his debt of R2 000 and this has been recorded. The balance of his account must now be written off.
3. Stocktaking on 28 February 2020 revealed the following stocks on hand:
Trading inventory R120 000
Stationery R800
4. The provision for bad debts must be adjusted to R6 800.
5. Rent has only been received up to 31 December 2019. Provide for the outstanding rent.
6. The insurance total includes an annual insurance premium of R6 000 that was paid for the period 01 September 2019 to 31 August 2020.
7. Provide for outstanding interest on the mortgage loan, R9 600.
8. Provide for outstanding interest on fixed deposit. The investment in fixed deposit was made on 01 March 2019 and matures on 31 August 2020.
9. The credit purchase of a new battery for the motor vehicle has not been recorded, R500.
10. Provide for depreciation as follows:
On equipment at 15% p.a. on cost.
On vehicles at 20% p.a. using the diminishing balance method
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