Balance Sheet Assets = Liabilities + Owners' Equity 1. 2. 3. 4. 5. 6. Income Statement Revenues - Expenses = Income
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.
![Financial Statement Relationships: [5010]
For each of the independent fact situations below determine the effects on each of the
financial statement elements shown in the following grid. Show increases with a '+' and
decreases with a '-'.
1. The firm received $120 cash for work that will be performed next year.
2. The firm signed a lease on office space for a one-year period starting today. Half of
the annual rent was paid today. The remainder will be paid at the end of the lease
term. The monthly rate is $20. Show the financial statement impacts for today.
3. One month of the one-year office rental has expired. [A transaction for accounting
purposes.]
4. The firm bought $10 office supplies on account for later use. 'On account' means the
firm will not pay the supplier until later.
5. The firm paid employees $30 for work to be done at a later date.
6. The firm's employees performed $30 work for the firm. The employees had been
paid for all of this work previously (previous item).
7. The firm repaid $70 to its bank. For simplicity, assume there was no interest.
8. The firm performed $300 of consulting services for a client and collected 60% of the
cash immediately. The remainder will be received at a later date as agreed upon.
Balance Sheet
Assets = Liabilities + Owners' Equity
1.
2.
3.
4.
5.
6.
7.
8
Income Statement
Revenues - Expenses = Income](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9b03eaac-8aac-45ad-be9c-3892b7db4f5f%2F07ef044e-7adc-4cb2-aeaf-680df60e83d3%2Fsf0eypi_processed.png&w=3840&q=75)
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