e paid in hop. Do
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.
2) Prepare her income statement for the first month.
![Mrs. Hiphop is going to open a music store with CDs. She has got CZK 220 000 from her savings, which she wants to invest
into her business and she has also received a bank loan in the amount of CZK 40 000. She bought the equipment (CZK
80 000), CZK 160 000 she spent on the CDs. The space for the shop will be rented and she will pay the rent immediately in
the month she uses the space i.e. June rent will be paid in June etc.
1) Prepare the opening balance sheet of Mrs. Hiphop. Do not forget to comply with the European or the American
habits. (15 points)
We are at the end of the first month of her operations. She sold one half of her CDs sbought at the beginning to satisfy her
customers. Individual customers paid in cash, but she also sold some CDs to disco clubs and these customers received
invoices, which are due in two months. The table below summarizes her revenues in the first month:
individual customers CZK 90 000
disco club 1
CZK 40 000
disco club 2
CZK 50 000
At the end of the month Mrs. Hiphop paid in cash a rent (CZK 25 000), bank loan interest (CZK 1000) and her salary (CZK
30 000) - everything paid and used during the first month.
She has also received an invoice for utilities used during the first month (CZK 2 000), which will be paid in 30 days.
Equipment is depreciated using straight line method for 20 months starting from the first month (now). During the first
month she bought and paid new material in the value of CZK 50 000.
Bank loan is not repaid at the moment, just the interest. Tax rate is 10% and will be paid immediately in cash.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F42d6ff1b-4c4f-46a4-85e4-524264493c65%2Fa7f28794-7889-4e9a-83f5-41718bc627a8%2F86mm6gh_processed.png&w=3840&q=75)
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