Complete each of the columns on the table below, indicating in which section each item would be reported on the statement of cash flows (operating, investing, or financing), the amount that would be reported, and whether the item would create an increase or decrease in cash. For item that affect more than one section of the statement, indicate all affected. Assume the indirect method of reporting cash flows from operating activities. Enter all amounts as positive numbers. The first item has been completed as an example. Item Statement Section (operating, financing, investing) Amount to Report +/- Effect on Cash Depreciation of $15,000 for the period Operating $15,000 Increase Issuance of common stock for $35,000 $ Increase in accounts payable of $7,000 $ Retirement of bonds at face value of $100,000 $ Purchase of long-term investments for $94,500 $ Dividends declared and paid of $8,300 $ Increase in Prepaid Rent of $4,500 $ Decrease in Inventory of $5,300 $ Purchase of equipment for $17,600 cash $ Sale of land originally costing $134,000 for $130,000 $ $ Decrease in taxes payable of $2,100 $
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.
Complete each of the columns on the table below, indicating in which section each item would be reported on the statement of
The first item has been completed as an example.
| Item | Statement Section (operating, financing, investing) | Amount to Report | +/- Effect on Cash |
| Operating | $15,000 | Increase | |
| Issuance of common stock for $35,000 | $ | ||
| Increase in accounts payable of $7,000 | $ | ||
| Retirement of bonds at face value of $100,000 | $ | ||
| Purchase of long-term investments for $94,500 | $ | ||
| Dividends declared and paid of $8,300 | $ | ||
| Increase in Prepaid Rent of $4,500 | $ | ||
| Decrease in Inventory of $5,300 | $ | ||
| Purchase of equipment for $17,600 cash | $ | ||
| Sale of land originally costing $134,000 for $130,000 | $ | ||
| $ | |||
| Decrease in taxes payable of $2,100 | $ |
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