Accounts payable $130 $160 250 Accrued wages 50 70 90 Bank loan 90 100 310 Total current liabilities 270 330 650 Long-term debt 300 400 500 Common stock 350 350 350 Retained earnings 80 120 360 Total liabilities and equity $1,000 $1,200 $1,860 1. The PDA Products Company was started in 2013. A difficult operating year, 2014, was followed by a profitable 2015. However, the founders are still concerned about the venture's liquidity position and the amount of cash being used to operate the firm. In 2015, the company successfully increase its net sales from $1,500 thousands to $2,500 thousands. Following are income statements and balance sheets for the Company from 2014 to 2016. 2014 2015 2016 Income statement (in thousands) (in thousands) (in thousands) Net sales $900 $1,500 $2,500 COGS 540 900 1,500 Gross profit 600 1,000 Marketing 90 150 250 General and administrative 200 200 200 Research and development 50 50 50 Depreciation 40 40 60 EBIT -20 160 440 Interest 45 60 80 Earnings before taxes -65 100 360 Income taxes 25 90 Net income (loss) ($65) $75 $270 2014 2015 2016 Balance sheet (in thousands) (in thousands) (in thousands) Cash $50 $20 $20 Accounts receivable 100 180 250 Prepaid expenses 100 100 100 Inventories 400 500 650 Total current assets 650 800 1,020 Net fixed assets 350 400 840 Total assets $1,000 $1,200 $1,860
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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