2019 2018 Cash $140,350 95,900 Accounts receivable (net) 95,300 102,300 Inventories 165,200 157,90
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.
Statement of Cash Flows
The comparative balance sheet of Kit Kat Company for December 31, 2019 and 2018, is as follows:
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Kit Kat Company Comparative Balance Sheet December 31, 2019 and 2018 |
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Assets |
2019 |
2018 |
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Cash |
$140,350 |
95,900 |
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|
95,300 |
102,300 |
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Inventories |
165,200 |
157,900 |
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Prepaid expenses |
6,240 |
5,860 |
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Investment (long-term) |
35,700 |
84,700 |
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Land |
75,000 |
90,000 |
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Buildings |
375,000 |
260,000 |
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|
(71,300) |
(58,300) |
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Machinery and equipment |
428,300 |
428,300 |
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Accumulated depreciation – machinery and equipment |
(148,500) |
(138,000) |
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Patents |
58,000 |
65,000 |
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Total Assets |
$1,159,290 |
$1,093,660 |
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Liabilities and |
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Accounts Payable (Merchandise Creditors) |
43,500 |
46,700 |
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Accrued expenses payable (operating expenses) |
14,000 |
12,500 |
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Income taxes payable |
7,900 |
8,400 |
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Dividends payable |
14,000 |
10,000 |
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Mortgage note payable, due in 10 years |
40,000 |
0 |
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Bonds payable |
150,000 |
250,00 |
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Common stock, $30 par |
450,000 |
375,000 |
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Excess of issue price over par – common stock |
66,250 |
41,250 |
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|
373,640 |
349,810 |
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Total liabilities and stockholder’s equity |
1,159,290 |
1,093,660 |
The income statement for Kit Kat Company follows:
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Kit Kat Company Income Statement December 31, 2019 |
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Sales |
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$1,100,000 |
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Cost of Merchandise sold |
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710,000 |
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Gross Profit |
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390,00 |
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Operating expenses: |
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Depreciation expense |
23,500 |
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Patent amortization |
7,000 |
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Other operating expenses |
196,000 |
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Total Operating expenses |
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226,500 |
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Income from operations |
|
163,500 |
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Other revenue and expense |
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Gain on sale of investments |
11,000 |
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Interest expense |
(26,000) |
(15,000) |
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Income before income tax |
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148,500 |
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Income tax expense |
|
50,000 |
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Net Income |
|
98,500 |
An examination of the accounting records revealed the following additional information applicable to 2019:
Instructions:
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Kit Kat Company Statement of Cash Flows – Indirect Method For the year ended December 31, 2019 |
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Cash flows from operating activities: |
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Adjustments to reconcile net income to net cash flow from operating activities: |
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Changes in current operating assets and liabilities: |
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Net Cash flow from operating activities |
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Cash flows from (used for) investing activities: |
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Net cash flow used for investing activities |
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Cash flows from (used for) financing activities |
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Net Cash flow used for financing activities |
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Kit Kat Company Statement of Cash Flows – Direct Method For the year ended December 31, 2019 |
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Cash flows from operating activities: |
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Net cash flow from operating activities: |
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Cash flows from (used for) investing activities: |
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Net cash flow used for investing activities |
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Cash flows from (used for) financing activities: |
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Net cash flow used for financing activities |
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