Below is the comparative balance sheet for ABC Industries. Dec. 31, Dec. 31, 2012 2011 Cash $ 9,500 $ 11,000 Short-term investments 35,000 50,000 Accounts receivable 71,000 80,000 Allowance for doubtful accounts (4,000) (5,000) Inventories 61,800 41,000 Prepaid insurance –0– 2,000 Land 40,000 20,000 Buildings 140,000 140,000 Accumulated depreciation—buildings (20,000) (15,000) Equipment 63,000 35,000 Accumulated depreciation—equipment (23,000) (11,100) Trademarks 25,000 –0– $398,300 $347,900 Dec. 31, Dec. 31, 2012 2011 Accounts payable $ 46,500 $ 36,000 Short-term notes payable 15,000 10,000 Accrued payables 5,000 10,000 Mortgage payable 65,000 70,000 Capital stock 63,000 58,000 Additional paid-in capital 156,000 134,000 Retained earnings 47,800 29,900 $398,300 $347,900 Dividends in the amount of $30,000 were declared and paid in 2012. Instructions Instructions From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions as appropriate. The short-term investments are considered available-for-sale, and no unrealized gains or losses have occurred on these securities.
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.
- (Worksheet Preparation or indirect Statement of
Cash Flows ) Below is the comparative balance sheet for ABC Industries.
Dec. 31, Dec. 31,
2012 2011
Cash $ 9,500 $ 11,000
Short-term investments 35,000 50,000
Allowance for doubtful accounts (4,000) (5,000)
Inventories 61,800 41,000
Prepaid insurance –0– 2,000
Land 40,000 20,000
Buildings 140,000 140,000
Equipment 63,000 35,000
Accumulated depreciation—equipment (23,000) (11,100)
Trademarks 25,000 –0–
$398,300 $347,900
Dec. 31, Dec. 31,
2012 2011
Accounts payable $ 46,500 $ 36,000
Short-term notes payable 15,000 10,000
Accrued payables 5,000 10,000
Mortgage payable 65,000 70,000
Capital stock 63,000 58,000
Additional paid-in capital 156,000 134,000
$398,300 $347,900
Dividends in the amount of $30,000 were declared and paid in 2012.
Instructions
Instructions From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions as appropriate. The short-term investments are considered available-for-sale, and no unrealized gains or losses have occurred on these securities.
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