The balance sheet of Evergreen Company on June 30, 2012, contains the following items: Assets Cash P 80,000 140,000 100,000 260,000 200,000 120,000 100,000 P1,000,000 Accountsreceivable (net) Inventories Land Building -net Machinery-net Patent Total Liabilities and Stockholders' Equity Accounts Payable Wag es Payable Taxes Payable Mortg age Payable Interest on Mortgage Payable Notes Payable - unsecured Interest Payable - unsecured Capital Stock Retained Earnings(deficit) Total P 220,000 120,000 20,000 300,000 30,000 100,000 10,000 400,000 (200,000) P1,000,000 The company is in financial difficulty, and its stockholders and creditors have requested a statement of affairs for planning purposes. The following information is available: a. The company estimates that P126,000 is the maximum amount of collectible for the accounts receivable. b. Except for 20% of the inventory items that are damaged and worth only P4,000, the cost of other items is expected to be recovered in full. c. The land and building have a combined appraisal value of P340,000 and are subject to the P300,000 mortgage and related accrued interest. d. The appraised value of the machinery is P40,000. Compute the following: How much is the net free assets? How much is the total unsecured liabilitieswith priority? • How much is the total unsecured liabilities without priority?
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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