Financial Statements Preparation Guide
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haniFinancial Statements Preparation Guide
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Powered by AIUnder the accrual basis of accounting, Cekap Sdn Bhd records expenses when they are incurred, regardless of when they are paid. For April 2023, this means recording liabilities for obligations such as utilities, rental, salaries (partially unpaid), and maintenance expenses. These expenses affect the income statement as incurred expenses while being reflected as liabilities on the statement of financial position until payments are made .
Notes receivable support liquidity as they represent formalized obligations payable to WOW Bhd. They provide assurance of future cash inflows, aiding cash flow management. However, reliance on notes receivable might signal liquidity issues if utilized excessively without immediate conversion into cash. They should be monitored for collection risk, impacting liquidity ratios and influencing the organization’s financial health evaluation .
Issuing 500,000 ordinary shares to acquire land and buildings at their fair values (RM400,000 for land and RM250,000 for the building) increases both the assets and the equity of WOW Bhd in the statement of financial position. The land and building are added to the non-current assets, while the ordinary share capital increases by RM650,000, reflecting the transaction’s value .
For Jaya Sdn Bhd, a lower actual supply level than the recorded amount requires an adjustment entry to decrease supplies and increase cost of goods sold (or an expense) by the difference. This adjustment reduces current assets and increases expenses, which results in a lower net income and retained earnings on the financial statements .
The reacquisition of 5,000 ordinary shares by WOW Bhd at RM8 per share results in a decrease of cash equivalent to RM40,000 and reduces both the company's equity and the number of outstanding shares. The repurchased shares are typically held as treasury shares or canceled, depending on the company’s policy. This transaction reduces the shareholder’s equity in the statement of financial position since there is an outflow of cash without a corresponding increase in assets or liabilities .
The straight-line depreciation method used for Jaya Sdn Bhd spreads the equipment cost evenly over its useful life, providing consistent depreciation expenses each period. This impacts financial performance by reducing net income as depreciation expense increases, reflecting the gradual consumption of asset value. It also reduces the book value of equipment on the statement of financial position, offering a realistic view of assets’ carrying amounts over time .
The receipt of RM10,600 for services to be performed next month is recorded as unearned revenue, a liability on the statement of financial position. This transaction does not affect revenue recognition until the service is performed in the future period. It represents an obligation to provide services, reducing the liability balance when services are subsequently rendered .
The revaluation surplus on land increases both the asset valuation on the statement of financial position and the equity under the revaluation surplus account in Cekap Sdn Bhd’s financial statements. The surplus does not affect the profit or loss as it is presented in other comprehensive income, thus not impacting retained earnings directly .
Upon the declaration of preference share dividends and RM0.30 per share ordinary dividends, WOW Bhd records a liability for the dividends payable, which decreases the retained earnings. The payment made on 15 December 2020 reduces cash and the corresponding liabilities, having no further impact on equity at that date after payment .
An accurate inventory count ensures the inventory figure in the financial statements reflects the physical inventory on hand, leading to precise cost of goods sold calculations. For Jaya Sdn Bhd, the correct inventory count also aids in disclosing accurate current asset values, ensuring neither overstatement nor understatement of profits and asset prices, thus providing a reliable basis for financial analysis and reporting .