Study the following balance sheet to help you prepare for your upcoming interview for an entry-level analyst position at Tun Fuels Corporation. Tun Fuels Corporation Balance Sheet Cash $1,293,750 Accounts payable $3,105,000 Accounts receivable $4,528,125 Accruals $1,940,625 Inventory $7,115,625 Notes payable $2,716,875 Total current assets $12,937,500 Total current liabilities $7,762,500 Long-term debt $5,737,500 Total debt $13,500,000 Common equity $2,700,000 Net plant and equipment $9,562,500 Retained earnings $6,300,000 Total equity $9,000,000 Total assets $22,500,000 Total liabilities and equity $22,500,000 During your interview for an introductory-level analyst position at Tun Fuels Corporation, the interviewer asks you to complete the following table using the information provided in the preceding balance sheet. Net Working Capital $___________________ Current Ratio _________.__________ Assume that TFC decides to purchase additional warehouse space costing $286,875 using long-term debt capital. Given the condition of the company noted in the balance sheet, this activity should be expected to cause TFC’s current ratio to ___________(pick either increase decrease or stay the same)
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.
Net working capital , working capital balances, and the current ratio
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|---|---|---|---|---|
| Cash | $1,293,750 | Accounts payable | $3,105,000 | |
| $4,528,125 | Accruals | $1,940,625 | ||
| Inventory | $7,115,625 | Notes payable | $2,716,875 | |
| Total current assets | $12,937,500 | Total current liabilities | $7,762,500 | |
| Long-term debt | $5,737,500 | |||
| Total debt | $13,500,000 | |||
| Common equity | $2,700,000 | |||
| Net plant and equipment | $9,562,500 | $6,300,000 | ||
| Total equity | $9,000,000 | |||
| Total assets | $22,500,000 | Total liabilities and equity | $22,500,000 |
| Net Working Capital | $___________________ |
| Current Ratio | _________.__________ |
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