Decision-Making Across the Organization CT14.3 Norman Roads and Sara Mesa are examining the following statement of cash flows for Del Carpio, SLU for the year ended January 31, 2020. Del Carpio SLU Statement of Cash Flows For the Year Ended January 31, 2020 Sources of cash From sales of merchandise €350,000 405,000 From sale of ordinary shares From sale of investment (purchased below) 85,000 From depreciation 75,000 From issuance of note for truck 25,000 From interest on investments 6,000 Total sources of cash 946,000 Uses of cash For purchase of fixtures and equipment 320,000 For merchandise purchased for resale 245,000 For operating expenses (including depreciation) 160,000 For purchase of investment 75,000 For purchase of truck by issuance of note 25,000 15,000 For purchase of ordinary shares For interest on note payable 5,000 845,000 Total uses of cash Net increase in cash €101,000 Norman claims that Del Carpio's statement of cash flows is an excellent portrayal of a superb first year with cash increasing €101,000. Sara replies that it was not a superb first year. Rather, she says, the year was an operating failure, the statement is presented incorrectly, and €101,000 is not the actual increase in cash. The cash balance at the beginning of the year was €140,000. Instructions With the class divided into groups, answer the following. a. Using the data provided, prepare a statement of cash flows in proper form using the indirect method. The only non-cash items in the income statement are depreciation and the gain from the sale of the investment. b. With whom do you agree, Norman or Sara? Explain your position.
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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