There are various classification errors and mistakes which have been recognized below:
Yes, the statement is true in the context that revenues and any kind of associated expenditures should be recognized in the accounting records of the company together in the same period. Therefore, there exist a cause and effect relationship among expenditures and revenues. This principle of accounting is based on accrual concept of accounting which is crucial for analysing and assessing the performance and position of the company correctly. The follow up of the matching principle of accounting assist the management in presenting true and fair view of financial position and performance of the company (Robinson, et. al., 2015).
The missing data has been calculated below:
Manar Corporation |
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Statement of Financial Position |
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At December 31, 2019 |
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Assets |
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Current assets: |
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Inventory |
29000 |
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Supplies |
950 |
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Cash |
42,650 |
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Accounts receivable |
12,850 |
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Less: Reserve for accounts receivable |
2,450 |
10,400 |
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Land held for sale |
3,000 |
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Prepaid rent |
19000 |
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Total current assets |
105,000 |
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Property and equipment: |
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Machines |
12,900 |
|||
Less: Depreciation reserve |
1400 |
11,500 |
||
Intangible Assets: |
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Goodwill |
2,000 |
|||
Total assets |
118,500 |
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Shareholders Equity and Liabilities |
||||
Shareholders’ equity: |
||||
Share capital |
50,000 |
|||
Retained earnings |
18,100 |
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Foreign currency translation reserve |
10,000 |
|||
Total shareholders’ equity |
78,100 |
|||
Current liabilities: |
||||
Accounts payable |
20,000 |
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Salaries payable |
13000 |
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Unearned rent revenue |
400 |
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Total current liabilities |
33,400 |
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Non - Current liabilities: |
||||
Note payable (Due in 2022) |
7,000 |
|||
Total non - current liabilities |
7,000 |
|||
Total shareholders’ equity and liabilities |
118,500 |
Manar Corporation |
||||
Statement of Cash Flows |
||||
For the Year Ended December 31 2019 |
||||
Cash at the beginning ( January 1, 2019) |
38500 |
|||
Cash Flows from Operating Activities |
||||
Net income |
$18,350 |
|||
Deprecation |
1200 |
|||
Increase in accounts receivable |
-8,900 |
|||
Decrease in supplies |
250 |
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Decrease in inventory |
9,000 |
|||
Decrease in prepaid rent |
3,000 |
|||
Decrease in Accounts payable |
-15,000 |
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Increase in salaries payable |
7,500 |
|||
Decrease in unearned rent revenue |
-10,350 |
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Net cash flows from operating activities |
5,050 |
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Cash Flows from Investing Activities |
||||
Purchase of machine |
-5,900 |
-5900 |
||
Cash Flows from Investing Activities |
||||
Increase in note payable |
7000 |
7000 |
||
Net Cash Available at the end December 31 2019 |
$42650 |
The classification of statement of financial position of the company assist management in organising the various items included in the balance sheet which ultimately helps in making the information easier to be understood by the users of the statement of the financial position. The information becomes easy to be read by the users. The enhanced and organized statement helps the management of the company in making efficient and effective decisions without sorting or digging through the information (Perera and Rathnairi, 2016). The classification involves dividing assets and liabilities of the company into different categories according to their nature and this will help in more clarification and accuracy in decision making.
References:
Mućko, P., Janowicz, M., Hońko, S. and Hendryk, M., 2019. Is accounting ready for the dual measurement in the statement of financial position and the statement of profit or loss? Content analysis of comment letters to the Exposure Draft of the Conceptual Framework. Zeszyty Teoretyczne Rachunkowości, (103 (159)), pp.203-225.
Perera, E.A.S.M. and Rathnairi, U.A.H.A., 2016. Classification of Non-Current Asset as Held for Sale.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial statement analysis. John Wiley & Sons.
Standard, I.A., 2015. Presentation of Financial Statements. Balance Sheet, 54, p.80A.
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