Company E Income Statement For the Year ended December 31, 20Y1 Sales $5,254,000 Cost of merchandise sold 3,700,000 Gross profit $1,554,000 Less: Operating expenses General and administrative expenses Depreciation expense- office building and equipment $30,000 Miscellaneous administrative expenses 7,500 Office rent expense 50,000 Office salaries expense 170,000 Office supplies expense 10,000 $267,500 Selling expenses Depreciation expense- store building and equipment $100,000 Advertising expense 150,000 Delivery expense 30,000 Miscellaneous selling expenses 14,000 Sales commissions 185,000 Sales salaries expense Store supplies expense 385,000 21,000 885,000 1,152,500 Net operating income $401,500 Other income Dividend revenue $4,500 Gain on sale of investment 4,980 Income from Company P 76,800 Interest revenue 2,720 89,000 Earnings before interest and tax $490,500 Interest expense 21,000 Earnings before taxes $469,500 Income tax expense 140,500 Net income $329,000 Earnings per share $2.29
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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