Lansing Company’s current-year income statement and selected balance sheet data at December 31 of the current and prior years follow. LANSING COMPANY Income Statement For Current Year Ended December 31 Sales revenue $ 106,200 Expenses Cost of goods sold 45,000 Depreciation expense 13,500 Salaries expense 21,000 Rent expense 9,300 Insurance expense 4,100 Interest expense 3,900 Utilities expense 3,100 Net income $ 6,300 LANSING COMPANY Selected Balance Sheet Accounts At December 31 Current Year Prior Year Accounts receivable $ 5,900 $ 6,400 Inventory 2,280 1,690 Accounts payable 4,700 5,200 Salaries payable 940 730 Utilities payable 280 190 Prepaid insurance 290 340 Prepaid rent 280 210 Problem 16-2AB (Algo) Direct: Computing cash flows from operations LO P5 Required: Prepare the operating activities section of the statement of cash flows using the direct method for the current year. (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 current-year income statement and selected balance sheet data at December 31 of the current and prior years follow.
| LANSING COMPANY | |
| Income Statement | |
| For Current Year Ended December 31 | |
| Sales revenue | $ 106,200 |
|---|---|
| Expenses | |
| Cost of goods sold | 45,000 |
| 13,500 | |
| Salaries expense | 21,000 |
| Rent expense | 9,300 |
| Insurance expense | 4,100 |
| Interest expense | 3,900 |
| Utilities expense | 3,100 |
| Net income | $ 6,300 |
| LANSING COMPANY | ||
| Selected Balance Sheet Accounts | ||
| At December 31 | Current Year | Prior Year |
|---|---|---|
| $ 5,900 | $ 6,400 | |
| Inventory | 2,280 | 1,690 |
| Accounts payable | 4,700 | 5,200 |
| Salaries payable | 940 | 730 |
| Utilities payable | 280 | 190 |
| Prepaid insurance | 290 | 340 |
| Prepaid rent | 280 | 210 |
Problem 16-2AB (Algo) Direct: Computing cash flows from operations LO P5
Required:
Prepare the operating activities section of the statement of cash flows using the direct method for the current year. (Amounts to be deducted should be indicated with a minus sign.)
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