If Easy Corporation will set up a Notes Receivable Discounted account, what will be the adjusted balance of Trade Notes Receivable account at December 31?
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.
As of December 31, the notes receivable account of Easy Corporation has a debit balance of Php 11,960. There was no balance at January 1. In analyzing this account, you discover that notes amounting to Php 42,250 were received from customers during the year under review; Php 20,800 of which were collected at maturity and Php 11,050 were discounted at the FWD Bank, the credit being to Notes Receivable. Of the Php 11,050 notes discounted, Php 5,200 were paid at maturity. One note for Php 1,560 (Red Company) was dishonored and was charged back to Notes Receivable.
Cash in the amount of Php 1,650 has been received as a partial payment on notes not yet due. These collections are shown as a liability on the balance sheet in an account entitled “Partial Payments on Notes Receivable”. Easy Corporation has also pledged a Php 2,500 customer’s note as collateral for the payment of the bank loan. The company is also treating as a cash item a three-month note for Php 400, given by an officer of the company, which is over a month past due.
Required:
If Easy Corporation will set up a Notes Receivable Discounted account, what will be the adjusted
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