Exercise 12 he following information is available for Umbrella Corporation for the year ended December 31, 2021: Collection of principal on long tem loan to a supplier Acquisition of equipment for cash Proceeds from the redemption of long term investment at carrying value Issue of common shares for cash Depreciation expense Redemption of bonds payable at amortized cost Payment of cash dividends 40,000 15,000 27,000 25,000 25,000 24,000 14,000 30,000 Profit Purchase of land by issuing bonds payable 40,000 in addition, the following information is available from the comparative balance sheet for Umbrella at the end of 2020 and 2021: 2021 102,000 20,000 17.000 139,000 2020 Cash Accounts receivable (net) Prepaid insurance Total cunent assets 14,000 15,000 13.000 42.000 Accounts payable Salaries payable Total curent liabilities 25,000 19,000 5,000 29,000 1.000 26.000 Instructions Prepare Umbrella's cash flow statement for the year ended December 31, 2021, using the indirect method. Solution 12 22-27 min)
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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