Exercise 21-25 (Algo) Cash flows from operating activities (direct method)–includes sale of cash equivalent [LO21-3] Portions of the financial statements for Clear Transmissions Company are provided below. CLEAR TRANSMISSIONS COMPANY Income Statement For the Year Ended December 31, 2021 ($ in thousands) Sales $2,220 Cost of goods sold Gross margin Salaries expense 888 1,332 $400 Depreciation expense Amortization expense 255 40 Interest expense 100 Loss on sale of cash equivalents 21 816 Income before taxes 516 Income tax expense 258 Net Income $ 258
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.
Portions of the financial statements for Clear Transmissions Company are provided below.
Prepare the
| Cash Flows from operating activities: | |
| Net Cash Flows from operating activities |
![Exercise 21-25 (Algo) Cash flows from operating activities (direct method)-includes sale of cash
equivalent [LO21-3]
Portions of the financial statements for Clear Transmissions Company are provided below.
CLEAR TRANSMISSIONS COMPANY
Income Statement
For the Year Ended December 31, 2021 ($ in thousands)
$2,220
Sales
Cost of goods sold
Gross margin
Salaries expense
888
1,332
$400
Depreciation expense
Amortization expense
Interest expense
255
40
100
Loss on sale of cash equivalents
21
816
Income before taxes
516
Income tax expense
258
Net Income
$
258](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F42e500ec-4da8-49e2-b3a0-97d91bc46ab8%2F1eb1a12d-749c-4fcc-913d-981ccad69bbd%2F5rcsttf_processed.png&w=3840&q=75)
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