Fellingham Software Company has assets of $850,000 and liabilities of $460,000.a. Prepare the owners’ equity section of the company’s balance sheet under each of the followingindependent assumptions:1. The business is organized as a sole proprietorship, owned by Johanna Small.2. The business is organized as a partnership, owned by Johanna Small and Mikki Yato.Small’s equity amounts to $240,000.3. The business is a corporation with 25 stockholders, each of whom originally invested$10,000 in exchange for shares of the company’s capital stock. The remainder of thestockholders’ equity has resulted from profi table operation of the business.b. Assume that you are a loan officer at Security Bank. Fellingham has applied to your bank for a large loan to finance the development of new products. Does it matter to you whether Fell-ingham is organized as a sole proprietorship, a partnership, or a corporation? Explain.
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.
Fellingham Software Company has assets of $850,000 and liabilities of $460,000.
a. Prepare the owners’ equity section of the company’s balance sheet under each of the following
independent assumptions:
1. The business is organized as a sole proprietorship, owned by Johanna Small.
2. The business is organized as a
Small’s equity amounts to $240,000.
3. The business is a corporation with 25 stockholders, each of whom originally invested
$10,000 in exchange for shares of the company’s capital stock. The remainder of the
b. Assume that you are a loan officer at Security Bank. Fellingham has applied to your bank for
a large loan to finance the development of new products. Does it matter to you whether Fell-
ingham is organized as a sole proprietorship, a partnership, or a corporation? Explain.
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