Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc.Balance Sheet BeginningBalance EndingBalance Assets Cash $ 140,000 $ 120,000 Accounts receivable 450,000 530,000 Inventory 320,000 380,000 Plant and equipment, net 680,000 620,000 Investment in Buisson, S.A. 250,000 280,000 Land (undeveloped) 180,000 170,000 Total assets $ 2,020,000 $ 2,100,000 Liabilities and Stockholders' Equity Accounts payable $ 360,000 $ 310,000 Long-term debt 1,500,000 1,500,000 Stockholders' equity 160,000 290,000 Total liabilities and stockholders' equity $ 2,020,000 $ 2,100,000 Joel de Paris, Inc.Income Statement Sales $ 4,050,000 Operating expenses 3,645,000 Net operating income 405,000 Interest and taxes: Interest expense $ 150,000 Tax expense 110,000 260,000 Net income $ 145,000 The company paid dividends of $15,000 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%. 1. average operating assets 2. margin % turnover ROI % Residual income
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.
Financial data for Joel de Paris, Inc., for last year follow:
| Joel de Paris, Inc. Balance Sheet |
||||||
| Beginning Balance |
Ending Balance |
|||||
| Assets | ||||||
| Cash | $ | 140,000 | $ | 120,000 | ||
| Accounts receivable | 450,000 | 530,000 | ||||
| Inventory | 320,000 | 380,000 | ||||
| Plant and equipment, net | 680,000 | 620,000 | ||||
| Investment in Buisson, S.A. | 250,000 | 280,000 | ||||
| Land (undeveloped) | 180,000 | 170,000 | ||||
| Total assets | $ | 2,020,000 | $ | 2,100,000 | ||
| Liabilities and Stockholders' Equity | ||||||
| Accounts payable | $ | 360,000 | $ | 310,000 | ||
| Long-term debt | 1,500,000 | 1,500,000 | ||||
| Stockholders' equity | 160,000 | 290,000 | ||||
| Total liabilities and stockholders' equity | $ | 2,020,000 | $ | 2,100,000 | ||
| Joel de Paris, Inc. Income Statement |
|||||||
| Sales | $ | 4,050,000 | |||||
| Operating expenses | 3,645,000 | ||||||
| Net operating income | 405,000 | ||||||
| Interest and taxes: | |||||||
| Interest expense | $ | 150,000 | |||||
| Tax expense | 110,000 | 260,000 | |||||
| Net income | $ | 145,000 | |||||
The company paid dividends of $15,000 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. The company's minimum required
| 1. | average operating assets | |
| 2. | margin | % |
| turnover | ||
| % | ||
| Residual income |
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