Shera Company just completed its second year of operations. The comparative income statements for these years a as follows: Prepare the horizontal analysis 2012 2013 $800,000 464,000 $336,000 Sales revenue Less: Cost of goods sold Gross margin Operating expenses Interest expense Income before taxes $500,000 300,000 $200,000 80,000 164,000 20,000 $100,000 34,000 $66.000 20,000 $152,000 51,680 $100,320 Income taxes Net Income Selected information from the balance sheet for 2013 is also given. Prepare the vertical analysis $100,000 400,000 Current assets Long term assets Total assets $500.000 $80,000 Current liabilities Long term liabilities 220,000 Total $300.000 liabilities $100,000 100,000 Common stock Retained earnings Total equity $200.000 Shera had 100,000 shares of stock outstanding. At the end of 2013, a share had a market value of $1.80. The shares outstanding have not changed since the original issue. Dividends of $30,000 were paid in 2013. Total assets have not changed during 2013. Additional requirement: 1. Comment on the trends revealed by the horizontal and vertical analysis.
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.
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