How to prepare a cash flows for May?
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.
How to prepare a
Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. completed the following transactions during its first month of operations.
| May | 1 | G. Gram invested $40,000 cash in the company. | ||
| 1 | The company rented a furnished office and paid $2,500 cash for May’s rent. | |||
| 3 | The company purchased $1,870 of office equipment on credit. | |||
| 5 | The company paid $740 cash for this month’s cleaning services. | |||
| 8 | The company provided consulting services for a client and immediately collected $5,900 cash. | |||
| 12 | The company provided $2,900 of consulting services for a client on credit. | |||
| 15 | The company paid $740 cash for an assistant’s salary for the first half of this month. | |||
| 20 | The company received $2,900 cash payment for the services provided on May 12. | |||
| 22 | The company provided $3,500 of consulting services on credit. | |||
| 25 | The company received $3,500 cash payment for the services provided on May 22. | |||
| 26 | The company paid $1,870 cash for the office equipment purchased on May 3. | |||
| 27 | The company purchased $80 of office equipment on credit. | |||
| 28 | The company paid $740 cash for an assistant’s salary for the second half of this month. | |||
| 30 | The company paid $400 cash for this month’s telephone bill. | |||
| 30 | The company paid $280 cash for this month’s utilities. | |||
| 31 | G. Gram withdrew $1,600 cash from the company for personal use. |
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