Suppose the income statement for Goggle Company reports $131 of net income, after deducting depreciation of $26. The company bought equipment costing $105 and obtained a long-term bank loan for $106. The company's comparative balance sheet, at December 31, is presented here. Requlred: 1. Calculate the change in each balance sheet account and indicate whether each account relates to operating. investing. andior financing activities (+ for increase and - for decrease). 2. Prepare a statement of cash flows using the indirect method. 6. Are the cash flows typical of a start-up, healthy, or troubled company?
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.
![E12-7 Preparing and Evaluating a Slmple Statement of Cash Flows (IndIrect Method) [LO 12-1, LO 12-2,
LO 12-5]
Suppose the income statement for Goggle Company reports $131 of net income, after deducting depreciation of $26. The company
bought equipment costing $105 and obtained a long-term bank loan for $106. The company's comparative balance sheet, at
December 31, is presented here.
Requlred:
1. Calculate the change in each balance sheet account and indicate whether each account relates to operating, investing, and/or
financing activities (+ for increase and - for decrease).
2. Prepare a statement of cash flows using the indirect method.
6. Are the cash flows typical of a start-up. healthy, or troubled company?
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Required 6
Calculate the change in each balance sheet account and indicate whether each account relates to operating, investing, and/or
financing activities (+ for increase and - for decrease). (Select "NE" if there is no effect. Enter all amounts as positive
values.)
Previous Year Current Year
Change
Турe
Cash
44
303
250 Cash
100 Operating
161 Operating
105 Investing
26 Operating
Accounts Receivable
84
193
+
Inventory
305
144
Equipment
545
650
Accumulated Depreciation-Equipment
(36)
(62)
Total
942
1,228
49 Operating
106 Financing
Salaries and Wages Payable
19
68
Notes Payable (long-term)
454
560
O Financing
131 Operating
Common Stock
19
19
NE
Retained Earnings
450
581
+
Total
942
1,228
< Required 1
Required 2 >
++
++](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd7f57acd-42b9-466e-a85d-4609f38f005a%2F3b2f867e-9934-4e07-b593-7017eea49df2%2F6t8rzrd_processed.png&w=3840&q=75)
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E12-7 Preparlng and Evaluating a Slimple Statement of Cash Flows (Indirect Method) [LO 12-1, LO
12-2, LO 12-5]
Suppose the income statement for Goggle Company reports $131 of net income, after deducting depreciation of $26. The
company bought equipment costing $105 and obtained a long-term bank loan for $106. The company's comparative balance
sheet, at December 31, is presented here.
Requlred:
1. Calculate the change in each balance sheet account and indicate whether each account relates to operating, investing, and.
financing activities (+ for increase and - for decrease).
2. Prepare a statement of cash flows using the indirect method.
6. Are the cash flows typical of a start-up, healthy, or troubled company?
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Required 6
Prepare a statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus
sign.)
GOGGLE COMPANY
Statement of Cash Flows
For the Year Ended December 31
Cash Flows from Operating Activities:
Net Income
131
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation
26
Changes in Current Assets and Current Liabilities
Increase in Acounts Receivable
(100)
Decrease in Inventory
161
Increase in Salaries and Wages Payable
49
Net Cash Provided by Operating Activities
258
Cash Flows from Investing Activities:
Équipment Purchased
(105)
(105)
Cash Flows from Financing Activities:
Obtained Bank Loan
106
Net Cash Provided by Financing Activities
106
Net Increase in Cash
250
Cash, Beginning of Current Year
44
ICash. End of Current Year
303](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd7f57acd-42b9-466e-a85d-4609f38f005a%2F3b2f867e-9934-4e07-b593-7017eea49df2%2Fmoruu29_processed.png&w=3840&q=75)
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