Below is a list of independent transactions. For each transaction, identify which section of the statement of cash flows it is to be reported and indicate if it is a cash in-flow (a positive number) or cash out-flow (negative number). (Hint: recall the use of the accounting equation A=L+E to help determine if an amount is a positive or negative number.) Description Section Amount Issue of bonds payable of $500 cash Sale of land and building of $60,000 cash Retirement of bonds payable of $20,000 cash Current portion of long-term debt changed from $56,000 to $50,000 Repurchase of company's own shares of $120,000 cash Issuance of common shares of $80,000 cash Payment of cash dividend of $25,000 recorded to retained earnings Purchase of land of $60,000 cash and a $100,000 note Cash dividends received from a trading investment of $5,000 Interest income received in cash from an investment of $2,000 Interest and finance charges paid of $15,000 Purchase of equipment for $32,000 Increase in accounts receivable of $75,000 Decrease in a short-term note payable of $10,000 Increase in income taxes payable of $3,000 Purchase of equipment in exchange for a $14,000 long-term note
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.
Below is a list of independent transactions. For each transaction, identify which section of the statement of
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Description |
Section |
Amount |
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Issue of bonds payable of $500 cash |
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Sale of land and building of $60,000 cash |
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Retirement of bonds payable of $20,000 cash |
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Current portion of long-term debt changed from $56,000 to $50,000 |
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Repurchase of company's own shares of $120,000 cash |
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Issuance of common shares of $80,000 cash |
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Payment of cash dividend of $25,000 recorded to |
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Purchase of land of $60,000 cash and a $100,000 note |
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Cash dividends received from a trading investment of $5,000 |
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Interest income received in cash from an investment of $2,000 |
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Interest and finance charges paid of $15,000 |
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Purchase of equipment for $32,000 |
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Increase in accounts receivable of $75,000 |
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Decrease in a short-term note payable of $10,000 |
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Increase in income taxes payable of $3,000 |
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Purchase of equipment in exchange for a $14,000 long-term note |
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