The comparative Balance Sheet of XYZ Inc. for December 31, 2019, and 2018 is shown as follows: 12/31/19 12/31/18 Assets Cash $62,760 $585,920 Accounts Receviable 227,840 208,960 Inventories $641,760 $617,120 Investments 0 240,000 Land 328,000 0 Equipment 705,120 553,120 Accumlated Depreciation-equipment (166,400) (148,000) Total Assets $2,362,080 $2,057,120 Liabilities and Stockholder’s Equity Accounts payable(merchandise creditors) $424,480 $404,960 Accrued expenses payable(operating expenses) 42,480 52,640 Dividends payable 24,000 19,200 Common Stock, $4 par 150,000 100,000 Paid in Capital - Common stock 417,500 280,000 Retained earnings 1,303,860 1,200,320 Total Liabilites and stockholder’s equity 2,362,080 2,057,120 Additional data obtained from an examined of the accounts in the ledger for 2019 as follows: The Investments were sold for $280,000 cash. Equipment and land were acquired for cash The common stock was issued for cash There was a $199,540 credit to Retained Earnings for net income There was a $96,000 debit to Retained Earnings for cash dividends declared Instructions: Prepare a statement of cash flow using the indirect method.
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.
problem 1
The comparative Balance Sheet of XYZ Inc. for December 31, 2019, and 2018 is shown as follows:
12/31/19 12/31/18
Assets
Cash $62,760 $585,920
Accounts Receviable 227,840 208,960
Inventories $641,760 $617,120
Investments 0 240,000
Land 328,000 0
Equipment 705,120 553,120
Accumlated
Total Assets $2,362,080 $2,057,120
Liabilities and
Accounts payable(merchandise creditors) $424,480 $404,960
Accrued expenses payable(operating expenses) 42,480 52,640
Dividends payable 24,000 19,200
Common Stock, $4 par 150,000 100,000
Paid in Capital - Common stock 417,500 280,000
Total Liabilites and stockholder’s equity 2,362,080 2,057,120
Additional data obtained from an examined of the accounts in the ledger for 2019 as follows:
- The Investments were sold for $280,000 cash.
- Equipment and land were acquired for cash
- The common stock was issued for cash
- There was a $199,540 credit to Retained Earnings for net income
- There was a $96,000 debit to Retained Earnings for cash dividends declared
Instructions:
Prepare a statement of cash flow using the indirect method.
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