a) From the information above, prepare a statement of cash flows (indirect method) for Hartman, Inc. for the year ended December 31, 2018. (b) From the information above, prepare a schedule of cash provided by operating activities using the direct method.
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.
Hartman, Inc. has prepared the following comparative balance sheets for 2017 and 2018:
2018 2017
Cash $ 282,000 $ 153,000
Inventory 150,000 180,000
Prepaid expenses 18,000 27,000
Plant assets 1,295,000 1,050,000
Patent 153,000 174,000
$1,587,000 $1,326,000
Accounts payable $ 153,000 $ 168,000
Accrued liabilities 60,000 42,000
Mortgage payable — 450,000
Additional paid-in capital—preferred 120,000 —
Common stock 600,000 600,000
$1,587,000 $1,326,000
- The Accumulated Depreciation account has been credited only for the depreciation expense for the period.
- The Retained Earnings account has been charged for dividends of $138,000 and credited for the net income for the year.
The income statement for 2018 is as follows:
Sales revenue $1,980,000
Cost of sales 1,089,000
Gross profit 891,000
Operating expenses 690,000
Net income $ 201,000
Instructions
(a) From the information above, prepare a statement of cash flows (indirect method) for Hartman, Inc. for the year ended December 31, 2018.
(b) From the information above, prepare a schedule of cash provided by operating activities using the direct method.
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