Sign Language Hearing Co Ltd Income Statement Year Ended October 31,2021 Revenues and gains: Sales revenue 850,000 Gain on sale of equipment Interest revenue 2,500 Total revenues and gains Expenses Cost of goods sold Salary expense Depreciation expense Rent expense Loss on sale of equipment Total expenses 852,500 465,500 65,500 24,000 49,500 2,500 607,000 245,500 38,000 207,500 Income before income taxes Income tax expense Net Profit Notes Purchase of equipment Cash receipt from sale of equipment Issuance of bonds payable to borrow cash Cash receipt from issuance of common stock Dividend paid Book value of equipment sold Purchase of treasury stock 243,000 76,500 100,000 40,000 112,500 79,000 90,000
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.
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.
REQUIREMENTS
- Prepare a complete statement of cash flows for October 2021 using the indirect method based on the information and guidance provided above.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
