b. Net income will be decreased or adjusted downward. Cash flows from investing activities c. Increase as a result of cash inflows.
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.
Any given transaction may affect a statement of
Cash flows from operating activities | |||
a. | Net income will be increased or adjusted upward. | ||
b. | Net income will be decreased or adjusted downward. | ||
Cash flows from investing activities | |||
c. | Increase as a result of |
||
d. | Decrease as a result of |
||
Cash flows from financing activities | |||
e. | Increase as a result of cash inflows. | ||
f. | Decrease as a result of cash outflows. | ||
The statement of cash flows is not affected | |||
g. | Not required to be reported in the body of the statement. |
![For each transaction listed below, list the letter or letters from above that describe(s) the effect of the transaction on a statement of
cash flows for the year ending December 31, 2021. (Ignore any income tax effects.)
1.
Preferred stock with a carrying value of $44,000 was redeemed for $50,000 on January 1, 2021.
Uncollectible accounts receivable of $3,000 were written off against the allowance for doubtful accounts
balance of $12,200 on December 31, 2021.
2.
Machinery which originally cost $3,000 and has a book value of $1,800 is sold for $1,400 on December 31,
3.
2021.
4.
Land is acquired through the issuance of bonds payable on July 1, 2021.
5.
1,000 shares of stock, stated value $10 per share, are issued for $25 per share in 2021.
6.
An appropriation of retained earnings for treasury stock of $35,000 is established in 2021.
7.
A cash dividend of $8,000 is paid on December 31, 2021.
8.
The portfolio of long-term investments (available-for-sale) is at an aggregate market value higher than
aggregate cost at December 31, 2021.
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