Cash $41,900 $34,100 Accounts Receivable 70,400 60,300 Inventory 29,900 24,000 Equity investments 22,100 38,300 Machinery 30,200 18,900 Buildings 67,900 56,800 Land 7,400 7,400 $269,800 $239,800 Credit Accounts Allowance for Doubtful Accounts $2,200 $1,500 Accumulated Depreciation—Machinery 5,600 2,200 Accumulated Depreciation—Buildings 13,400 8,900 Accounts Payable 35,300 24,700 Accrued Payables 3,400 2,600 Long-Term Notes Payable 21,000 30,800 Common Stock, no-par 150,000 125,000 Retained Earnings 38,900 44,100 $269,800 $239,800 Additional data (ignoring taxes): 1. Net income for the year was $40,900. 2. Cash dividends declared and paid during the year were $21,100. 3. A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized. 4. Equity investments (level of ownership is less than 20%) that cost $25,200 were sold during the year for $29,000. No unrealized gains and losses were recorded on these investments in 2017. 5. Machinery that cost $3,700, on which $750 of depreciation had accumulated, was sold for $2,150. Sweet’s 2017 income statement follows (ignoring taxes). Sales revenue $538,000 Less: Cost of goods sold 380,200 Gross margin 157,800 Less: Operating expenses (includes $8,650 depreciation and $5,364 bad debts) 119,900 Income from operations 37,900 Other: Gain on sale of investments $3,800 Loss on sale of machinery (800 ) 3,000 Net income $40,900 Prepare a statement of cash flows using the indirect 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.
| Cash |
$41,900
|
$34,100
|
||
|
70,400
|
60,300
|
|||
| Inventory |
29,900
|
24,000
|
||
| Equity investments |
22,100
|
38,300
|
||
| Machinery |
30,200
|
18,900
|
||
| Buildings |
67,900
|
56,800
|
||
| Land |
7,400
|
7,400
|
||
|
$269,800
|
$239,800
|
|||
| Credit Accounts | ||||
| Allowance for Doubtful Accounts |
$2,200
|
$1,500
|
||
|
5,600
|
2,200
|
|||
| Accumulated Depreciation—Buildings |
13,400
|
8,900
|
||
| Accounts Payable |
35,300
|
24,700
|
||
| Accrued Payables |
3,400
|
2,600
|
||
| Long-Term Notes Payable |
21,000
|
30,800
|
||
| Common Stock, no-par |
150,000
|
125,000
|
||
|
38,900
|
44,100
|
|||
|
$269,800
|
$239,800
|
Additional data (ignoring taxes):
| 1. | Net income for the year was $40,900. | |
| 2. | Cash dividends declared and paid during the year were $21,100. | |
| 3. | A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized. | |
| 4. | Equity investments (level of ownership is less than 20%) that cost $25,200 were sold during the year for $29,000. No unrealized gains and losses were recorded on these investments in 2017. | |
| 5. | Machinery that cost $3,700, on which $750 of depreciation had accumulated, was sold for $2,150. |
Sweet’s 2017 income statement follows (ignoring taxes).
| Sales revenue |
$538,000
|
||||
| Less: Cost of goods sold |
380,200
|
||||
| Gross margin |
157,800
|
||||
| Less: Operating expenses (includes $8,650 depreciation and $5,364 |
119,900
|
||||
| Income from operations |
37,900
|
||||
| Other: Gain on sale of investments |
$3,800
|
||||
| Loss on sale of machinery |
(800
|
)
|
3,000
|
||
| Net income |
$40,900
|
Prepare a statement of cash flows using the indirect method
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