Presented below is the income statement of Lauren, Inc. for the year ended December 31, 2022: Sales $380,000 Cost of goods sold 225,000 Gross profit 155,000 Operating expenses 95,000 Income before income taxes 60,000 Income taxes 24,000 Net income $36,000 In addition, the following information related to current assets and liabilities is provided. 12/31/2022 12/31/2021
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.
- Presented below is the income statement of Lauren, Inc. for the year ended December 31, 2022:
|
Sales |
$380,000 |
|
Cost of goods sold |
225,000 |
|
Gross profit |
155,000 |
|
Operating expenses |
95,000 |
|
Income before income taxes |
60,000 |
|
Income taxes |
24,000 |
|
Net income |
$36,000 |
In addition, the following information related to current assets and liabilities is provided.
|
12/31/2022 |
12/31/2021 |
||
|
Cash |
32,000 |
20,000 |
|
|
Accounts receivable (net) |
65,000 |
55,000 |
|
|
Inventories |
40,600 |
60,000 |
|
|
Salaries payable |
15,000 |
23,000 |
|
|
Trade accounts payable |
39,000 |
30,000 |
|
|
Income Tax Payable |
15,000 |
18,000 |
The company also indicates that
Required:
- Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of
cash flows using the direct method. - Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows using the indirect method.
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