10. What is the net income under cash basis?
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.
10. What is the net income under cash basis?
![Dragon Company provided the following data for the current year:
Cash sales
2,500,000
Sales on account
850,000
Cash purchases
Credit purchases
1,700,000
400,000
750,000
Expenses paid
Accounts receivable - January 1
250,000
Accounts receivable – December 31
300,000
Accounts payable – January 1
150,000
Accounts payable – December 31
Inventory - January 1
Inventory - December 31
Accrued expenses – December 31
Prepaid expenses – December 31
Equipment – December 31
200,000
500,000
600,000
20,000
30,000
1,000,000
40,000
10,000
Interest received
Interest receivable – January 1
Interest receivable – December 31
20,000
On July 1 of the current year, an equipment was acquired for P200,000. The terms are P50,000 down
and the balance to be paid after one year.
The useful life of equipment is 10 years with no residual value.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1fe14364-61fc-4709-a803-60f020caba8c%2F72941f40-29ba-47b6-9427-1e1baecf04da%2Fwaja3qa_processed.jpeg&w=3840&q=75)
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