2. Using the information from Part 1, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)
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.
Required information
Problem 13-7 (Algo) Prepare a Statement of Cash Flows [LO13-1, LO13-2]
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[The following information applies to the questions displayed below.]
Comparative financial statements for Weaver Company follow:
| Weaver Company Comparative Balance Sheet at December 31 |
||
| This Year | Last Year | |
|---|---|---|
| Assets | ||
| Cash | $ 15 | $ 11 |
| Accounts receivable | 291 | 228 |
| Inventory | 152 | 195 |
| Prepaid expenses | 8 | 5 |
| Total current assets | 466 | 439 |
| Property, plant, and equipment | 514 | 435 |
| Less |
(83) | (71) |
| Net property, plant, and equipment | 431 | 364 |
| Long-term investments | 25 | 32 |
| Total assets | $ 922 | $ 835 |
| Liabilities and |
||
| Accounts payable | $ 302 | $ 225 |
| Accrued liabilities | 70 | 79 |
| Income taxes payable | 75 | 63 |
| Total current liabilities | 447 | 367 |
| Bonds payable | 199 | 171 |
| Total liabilities | 646 | 538 |
| Common stock | 162 | 202 |
| 114 | 95 | |
| Total stockholders’ equity | 276 | 297 |
| Total liabilities and stockholders' equity | $ 922 | $ 835 |
| Weaver Company Income Statement For This Year Ended December 31 |
||
| Sales | $ 752 | |
|---|---|---|
| Cost of goods sold | 450 | |
| Gross margin | 302 | |
| Selling and administrative expenses | 222 | |
| Net operating income | 80 | |
| Nonoperating items: | ||
| Gain on sale of investments | $ 6 | |
| Loss on sale of equipment | (3) | 3 |
| Income before taxes | 83 | |
| Income taxes | 24 | |
| Net income | $ 59 |
During this year, Weaver sold some equipment for $18 that had cost $31 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $13 that had cost $7 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $40 of its own stock. This year Weaver did not retire any bonds.
Problem 13-7 Part 2 (Algo)
2. Using the information from Part 1, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year. (List any deduction in cash and
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