Natalie has prepared the balance sheet and income statement of Cookie & Coffee Creations Inc. and would like you to prepare the cash flow statement. The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2023 for the years 2023 and 2022 and the income statement for the year ended October 31, 2023, are presented below. COOKIE & COFFEE CREATIONS INC. Balance Sheet October 31, Assets 2023 2022 Cash $29,074 $11,550 Accounts receivable 3,250 2,710 Inventory 7,897 7,450 Prepaid expenses 5,800 6,050 Equipment
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.
Natalie has prepared the balance sheet and income statement of Cookie & Coffee Creations Inc. and would like you to prepare the
| COOKIE & COFFEE CREATIONS INC. Balance Sheet October 31, |
||||||
|---|---|---|---|---|---|---|
| Assets | 2023 | 2022 | ||||
|
Cash
|
$29,074 | $11,550 | ||||
|
Accounts receivable
|
3,250 | 2,710 | ||||
|
Inventory
|
7,897 | 7,450 | ||||
|
Prepaid expenses
|
5,800 | 6,050 | ||||
|
Equipment
|
102,000 | 75,500 | ||||
|
|
(25,200) | (9,100) | ||||
|
Total assets
|
$122,821 |
|
$94,160 |
|
||
| Liabilities and |
2018 | 2017 | ||||
|
Accounts payable
|
$1,150 | $2,450 | ||||
|
Income taxes payable
|
9,251 | 7,200 | ||||
|
Dividends payable
|
27,000 | 27,000 | ||||
|
Salaries and wages payable
|
7,250 | 1,280 | ||||
|
Interest payable
|
188 | 0 | ||||
|
Note payable
|
10,000 | 0 | ||||
|
|
15,000 | 14,000 | ||||
|
Common stock, $1 par—25,930 shares issued and outstanding
|
25,930 | 25,930 | ||||
|
Additional paid-in capital—
|
250 | 0 | ||||
|
|
26,802 | 16,800 | ||||
|
Less: Treasury stock
|
0 | (500) | ||||
|
Total liabilities and stockholders’ equity
|
$122,821 | $94,160 |
| COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31, 2023 |
||||
|---|---|---|---|---|
|
Sales
|
$485,625 | |||
|
Cost of goods sold
|
222,694 | |||
|
Gross profit
|
262,931 | |||
|
Operating expenses
|
||||
|
Salaries and wages expense
|
$147,979 | |||
|
Depreciation expense
|
17,600 | |||
|
Other operating expenses
|
48,186 | 213,765 | ||
|
Income from operations
|
49,166 | |||
|
Other expenses
|
||||
|
Interest expense
|
$413 | |||
|
Loss on disposal of plant assets
|
2,500 | 2,913 | ||
|
Income before income tax
|
46,253 | |||
|
Income tax expense
|
9,251 | |||
|
Net income
|
$37,002 |
Additional information:
| 1. | Equipment (cost $4,500 and book value $3,000) was disposed of at the beginning of the year for $500 cash and replaced with new equipment purchased for $4,000 cash. | |
| 2. | Additional equipment was bought for $14,000 on November 1, 2022. A $12,000 note payable was signed. The terms provide for equal semi-annual installment payments of $2,000 on May 1 and November 1 of each year, plus interest of 5% on the outstanding principal balance. | |
| 3. | Other equipment was bought for $13,000 cash. | |
| 4. | Dividends were declared on the preferred and common stock on October 15, 2023, to be paid on November 15, 2023. | |
| 5. | Accounts payable relate only to merchandise creditors. | |
| 6. | Prepaid expenses relate only to other operating expenses. |
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