Exercise 1-21 (Algo) Preparing a statement of cash flows LO P2 Also assume the following: a. The owner's initial investment consists of $37,850 cash and $46,000 in land in exchange for its common stock. b. The company's $17,820 equipment purchase is paid in cash. c. Cash paid to employees is $1,600. The accounts payable balance of $8,400 consists of the $3,140 office supplies purchase and $5,260 in employee salaries yet to be paid. d. The company's rent expense, telephone expense, and miscellaneous expenses are paid in cash. e. No cash has yet been collected on the $13,860 consulting revenue earned. Using the above information prepare a December statement of cash flows for Ernst Consulting Note: Cash outflows should be indicated by a minus sign. ERNST CONSULTING Statement of Cash Flows For Month Ended December 31 Cash flows from operating activities Cash received from customers Cash paid for telephone expenses Cash paid for rent Cash paid for miscellaneous expenses Cash paid to employees Net cash used by operating activities Cash flows from investing activities Cash paid for office equipment Cash flows from financing activities Cash balance, December 1 Cash balance, December 31 $ $ $ 0 0
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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Use the following information for the Exercises below. (Algo)
[The following information applies to the questions displayed below.]
On December 1, Jasmin Ernst organized Ernst Consulting. On December 3, the owner contributed $83,850 in
assets in exchange for its common stock to launch the business. On December 31, the company's records show
the following items and amounts.
Cash
Accounts receivable
Office supplies
Office equipment
Land
Accounts payable
Common stock
$ 11,580 Cash dividends
13,860 Consulting revenue
3,140 Rent expense
17,820 Salaries expense
46,000 Telephone expense
8,400 Miscellaneous expenses
83,858
$ 1,890
13,860
3,398
6,868
888
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