Lansing Company’s 2018 income statement and selected balance sheet data (for current assets and current liabilities) at December 31, 2017 and 2018, follow. LANSING COMPANY Income Statement For Year Ended December 31, 2018 Sales revenue $ 100,200 Expenses Cost of goods sold 43,000 Depreciation expense 12,500 Salaries expense 19,000 Rent expense 9,100 Insurance expense 3,900 Interest expense 3,700 Utilities expense 2,900 Net income $ 6,100 LANSING COMPANY Selected Balance Sheet Accounts At December 31 2018 2017 Accounts receivable $ 5,700 $ 6,000 Inventory 2,080 1,590 Accounts payable 4,500 4,800 Salaries payable 900 710 Utilities payable 240 170 Prepaid insurance 270 300 Prepaid rent 240 190 Required: Prepare the cash flows from operating activities section only of the company’s 2018 statement of cash flows using the direct method. (Amounts to be deducted should be indicated with a minus sign.)
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.
Lansing Company’s 2018 income statement and selected balance sheet data (for current assets and current liabilities) at December 31, 2017 and 2018, follow.
| LANSING COMPANY Income Statement For Year Ended December 31, 2018 |
||
| Sales revenue | $ | 100,200 |
| Expenses | ||
| Cost of goods sold | 43,000 | |
| 12,500 | ||
| Salaries expense | 19,000 | |
| Rent expense | 9,100 | |
| Insurance expense | 3,900 | |
| Interest expense | 3,700 | |
| Utilities expense | 2,900 | |
| Net income | $ | 6,100 |
| LANSING COMPANY Selected Balance Sheet Accounts |
||||||
| At December 31 | 2018 | 2017 | ||||
| $ | 5,700 | $ | 6,000 | |||
| Inventory | 2,080 | 1,590 | ||||
| Accounts payable | 4,500 | 4,800 | ||||
| Salaries payable | 900 | 710 | ||||
| Utilities payable | 240 | 170 | ||||
| Prepaid insurance | 270 | 300 | ||||
| Prepaid rent | 240 | 190 | ||||
Required:
Prepare the cash flows from operating activities section only of the company’s 2018 statement of cash flows using the direct method. (Amounts to be deducted should be indicated with a minus sign.)
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