Related Objectives: •. Identify the purposes of the statement of cash flows. • Identify the distinguishing features of operating, investing, and financing cash flows. • Prepare the statement of cash flows by the indirect method. • Identify noncash investing and financing activities. Scenario: The comparative balance sheet and income statement of Sign Language Hearing Co Ltd, have just been prepared and presented to the owners by the company’s Accountant. The owners are concerned about the movement in the company’s cash and cash equivalent given that the balance sheet does not show or explain the reason or reasons why there was an increase or decrease in this area. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the owners. The owners have asked each student from your accounting course to assist with the needed clarification and have put forward the following financial information grouped according to your surname initial. (Example surname Brad will use the initial B and that person should only use the info presented in line with the heading with their surname initial. If you have a double barrel surname for example Campbell-Brown, use the initial for the one at the front which in this case would be C.) Having identified the information in line with your surname you are next required to address the requirements outlined below. Financial info to be used by surnames with initials (C,O,R,Y) Sign Language Hearing Co Ltd Comparative Balance Sheet October 31, 2020, and 2021 2021 2020 Assets Cash and cash equivalent 188,000 200,000 Accounts Receivable 230,000 200,000 Inventory 350,000 380,000 Equipment, net 350,000 220,000 Total Assets 1,118,000 1,000,000 Liabilities Accounts payable 260,000 275,000 Accrued liabilities 95,000 75,000 Income tax payable 65,400 65,400 Bond payable 195,200 105,600 Stockholders' Equity: Common Stock 155,500 95,300 Retained earnings 650,450 550,300 Treasury stock (303,550) (166,600) Total liabilities and stockholders' equity 1,118,000 1,000,000 Sign Language Hearing Co Ltd Income Statement Year Ended October 31,2021 Revenues and gains: Sales revenue 800,000 Gain on sale of equipment 5,000 Total revenues and gains 805,000 Expenses Cost of goods sold 480,000 Salary expense 58,500 Depreciation expense 20,000 Rent expense 65,000 Total expenses 623,500 Income before income taxes 181,500 Income tax expense 18,000 Net Profit 163,500 Notes Purchase of equipment 215,000 Cash receipt from sale of equipment 70,000 Issuance of bonds payable to borrow cash 89,600 Cash receipt from issuance of common stock 60,200 Dividend paid 63,350 Book value of equipment sold 65,000 Purchase of treasury stock 136,950
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.
Related Objectives:
•. Identify the purposes of the statement of cash flows.
• Identify the distinguishing features of operating, investing, and financing cash flows.
• Prepare the statement of cash flows by the indirect method.
• Identify noncash investing and financing activities.
Scenario:
The comparative balance sheet and income statement of Sign Language Hearing Co Ltd, have just been prepared and presented to the owners by the company’s Accountant. The owners are concerned about the movement in the company’s cash and cash equivalent given that the balance sheet does not show or explain the reason or reasons why there was an increase or decrease in this area. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the owners.
The owners have asked each student from your accounting course to assist with the needed clarification and have put forward the following financial information grouped according to your surname initial. (Example surname Brad will use the initial B and that person should only use the info presented in line with the heading with their surname initial. If you have a double barrel surname for example Campbell-Brown, use the initial for the one at the front which in this case would be C.)
Having identified the information in line with your surname you are next required to address the requirements outlined below.
Financial info to be used by surnames with initials (C,O,R,Y)
|
Sign Language Hearing Co Ltd Comparative Balance Sheet October 31, 2020, and 2021 |
||
|
|
2021 |
2020 |
|
Assets |
|
|
|
Cash and cash equivalent |
188,000 |
200,000 |
|
|
230,000 |
200,000 |
|
Inventory |
350,000 |
380,000 |
|
Equipment, net |
350,000 |
220,000 |
|
Total Assets |
1,118,000 |
1,000,000 |
|
Liabilities |
|
|
|
Accounts payable |
260,000 |
275,000 |
|
Accrued liabilities |
95,000 |
75,000 |
|
Income tax payable |
65,400 |
65,400 |
|
Bond payable |
195,200 |
105,600 |
|
|
|
|
|
Common Stock |
155,500 |
95,300 |
|
|
650,450 |
550,300 |
|
|
(303,550) |
(166,600) |
|
Total liabilities and stockholders' equity |
1,118,000 |
1,000,000 |
|
Sign Language Hearing Co Ltd Income Statement Year Ended October 31,2021 |
||
|
Revenues and gains: |
|
|
|
Sales revenue |
800,000 |
|
|
Gain on sale of equipment |
5,000 |
|
|
Total revenues and gains |
|
805,000 |
|
Expenses |
|
|
|
Cost of goods sold |
480,000 |
|
|
Salary expense |
58,500 |
|
|
|
20,000 |
|
|
Rent expense |
65,000 |
|
|
Total expenses |
|
623,500 |
|
Income before income taxes |
|
181,500 |
|
Income tax expense |
|
18,000 |
|
Net Profit |
|
163,500 |
|
Notes |
||
|
Purchase of equipment |
215,000 |
|
|
Cash receipt from sale of equipment |
70,000 |
|
|
Issuance of bonds payable to borrow cash |
89,600 |
|
|
Cash receipt from issuance of common stock |
60,200 |
|
|
Dividend paid |
63,350 |
|
|
Book value of equipment sold |
65,000 |
|
|
Purchase of treasury stock |
136,950 |
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