Following are comparative balance sheets for Millco Inc. at January 31 and February 28, 2020: MILLCO INC. Balance Sheets February 28 and January 31, 2020 February 28 January 31 Assets Cash $ 29,400 $ 25,900 Accounts receivable 44,800 37,100 Merchandise inventory 56,700 65,800 Total current assets $ 130,900 $ 128,800 Plant and equipment: Production equipment 116,200 106,400 Less: Accumulated depreciation (16,800 ) (14,700 ) Total assets $ 230,300 $ 220,500 Liabilities Accounts payable $ 25,900 $ 28,700 Short-term debt 30,800 30,800 Other accrued liabilities 14,700 16,800 Total current liabilities $ 71,400 $ 76,300 Long-term debt 23,100 32,200 Total liabilities $ 94,500 $ 108,500 Stockholders' Equity Common stock, no par value, 28,000 shares authorized, 21,000 and 19,600 shares issued, respectively $ 72,800 $ 67,200 Retained earnings: Beginning balance $ 44,800 $ 30,100 Net income for month 25,200 20,300 Dividends (7,000 ) (5,600 ) Ending balance $ 63,000 $ 44,800 Total stockholders' equity $ 135,800 $ 112,000 Total liabilities and stockholders' equity $ 230,300 $ 220,500 Calculate the change that occurred in cash during the month. You may assume that the change in each balance sheet amount is due to a single event (for example, the change in the amount of production equipment is not the result of both a purchase and sale of equipment). Because the retained earnings section of the balance sheet is, in and of itself, an analysis of the change in the retained earnings account for the month, the row for net income and dividends should be entered as the February amount and not the change. Use the space to the right of the January 31 data to enter the difference between the February 28 and January 31 amounts of each balance sheet item. Show less MILLCO INC. Balance Sheets January 31 and February 28, 2020 February 28 January 31 Change Assets Cash $29,400 $25,900 3,500 Accounts receivable 44,800 37,100 7,700 Merchandise inventory 56,700 65,800 (9,100) Total current assets $130,900 $128,800 Plant and equipment: Production equipment 116,200 106,400 9,800 Less: Accumulated depreciation (16,800) (14,700) (2,100) Total assets $230,300 $220,500 Liabilities Accounts payable $25,900 $28,700 (2,800) Short-term debt 30,800 30,800 .00 Other accrued liabilities 14,700 16,800 (2,100) Total current liabilities $71,400 $76,300 Long-term debt 23,100 32,200 (9,100) Total liabilities $94,500 $108,500 Stockholders’ Equity Common stock $72,800 $67,200 5,600 Retained earnings: Beginning balance $44,800 $30,100 Net income for month 25,200 20,300 25,200 Dividends (7,000) (5,600) (7,000) Ending balance $63,000 $44,800 Total stockholders’ equity $135,800 $112,000 Total liabilities and stockholders’ equity $220,500 Prepare a statement of cash flows that explains above changes?
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.
Following are comparative balance sheets for Millco Inc. at January 31 and February 28, 2020:
| MILLCO INC. | |||||||
| Balance Sheets | |||||||
| February 28 and January 31, 2020 | |||||||
| February 28 | January 31 | ||||||
| Assets | |||||||
| Cash | $ | 29,400 | $ | 25,900 | |||
| 44,800 | 37,100 | ||||||
| Merchandise inventory | 56,700 | 65,800 | |||||
| Total current assets | $ | 130,900 | $ | 128,800 | |||
| Plant and equipment: | |||||||
| Production equipment | 116,200 | 106,400 | |||||
| Less: Accumulated |
(16,800 | ) | (14,700 | ) | |||
| Total assets | $ | 230,300 | $ | 220,500 | |||
| Liabilities | |||||||
| Accounts payable | $ | 25,900 | $ | 28,700 | |||
| Short-term debt | 30,800 | 30,800 | |||||
| Other accrued liabilities | 14,700 | 16,800 | |||||
| Total current liabilities | $ | 71,400 | $ | 76,300 | |||
| Long-term debt | 23,100 | 32,200 | |||||
| Total liabilities | $ | 94,500 | $ | 108,500 | |||
| Common stock, no par value, 28,000 shares authorized, 21,000 and 19,600 shares issued, respectively | $ | 72,800 | $ | 67,200 | |||
| Beginning balance | $ | 44,800 | $ | 30,100 | |||
| Net income for month | 25,200 | 20,300 | |||||
| Dividends | (7,000 | ) | (5,600 | ) | |||
| Ending balance | $ | 63,000 | $ | 44,800 | |||
| Total stockholders' equity | $ | 135,800 | $ | 112,000 | |||
| Total liabilities and stockholders' equity | $ | 230,300 | $ | 220,500 | |||
Calculate the change that occurred in cash during the month. You may assume that the change in each balance sheet amount is due to a single event (for example, the change in the amount of production equipment is not the result of both a purchase and sale of equipment). Because the retained earnings section of the balance sheet is, in and of itself, an analysis of the change in the retained earnings account for the month, the row for net income and dividends should be entered as the February amount and not the change. Use the space to the right of the January 31 data to enter the difference between the February 28 and January 31 amounts of each balance sheet item.
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- Prepare a statement of cash flows that explains above changes?
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