Chapter 1, Problem 1PSA

To determine

Balance Sheet:

It is a part of the Financial Statement of a company, which shows the financial position of the company as from where the company receive the money (assets) and to whom the company has to pay. (liabilities and shareholders').While purchase a share in the company the investor will firstly see the balance sheet of the respective company than only decide whether he purchase the share or not.

Income Statement:

It includes the information of net income earn or net loss suffered by the company. The expenses deducting from revenue and the resultant is net income or loss to the company. This is informative report that helps the user of financial information to take decision.

Statement of Cash Flows:

Cash flow statement shows the changes in cash. When there is any change in the balance sheet that will be shown in cash flow statement. The cash flow statement record the changes in cash terms, means only cash transaction are account for. Non cash transaction is not record in the cash flow statement.

Assets:

Assets are the resources that a company needs to run the business. An asset is economic resources of the company.

Liabilities:

Liabilities are generally the amount owned by the company from lenders, suppliers, or bank. Liabilities are the burden on the company that they have to pay to others.

Equity:

The Company needs finance to run the business. Equity is one of the method through which the company raise the capital.

Cash Flow from Operating Activities:

The inflow and outflow of cash related to the operating nature is basically operating activity. The cash flow from operating activities can be computed by doing some adjustment in net income. There are two method of calculating cash flow from operating activity. One is the direct method, in this add revenue obtained and subtract the expenses. The other method of calculating cash flows from operating activity is an indirect method in this add non cash item to get correct cash flows.

Cash Flow from Investing Activities:

In this activity of cash flows, sale and purchase of investment/fixed assets, or any income related to the investment will be recorded. For example a fixed asset acquire from the company that will reduce the cash flow and a sale of investment that will increase the cash flow from investing activity.

Cash Flow from Financing Activities:

This includes the cash flows related to financial transactions. The issue of shares will increase the cash flow from financing activity as it involves the increase in cash. The payment to the debenture holder involves cash outflow and the cash balance will reduces.

To identify: The effect of transactions.