### Income Statement for Surfside Airlines **Sales**: $150,000 **Variable Operating Costs**: ($105,000) **Gross Profit**: $45,000 **Fixed Operating Costs**: ($20,000) **Net Operating Income**: $25,000 **Interest**: ($15,000) **Earnings Before Taxes**: $10,000 **Taxes (40%)**: ($4,000) **Net Income**: $6,000 ### Explanation This financial statement provides an overview of Surfside Airlines' income, expenses, and profits. Here’s a breakdown: - **Sales** represent the total revenue generated before any expenses are subtracted. - **Variable Operating Costs** are expenses that fluctuate directly with sales volume. These are subtracted from sales to determine gross profit. - **Gross Profit** is the profit a company makes after deducting the costs associated with making and selling its products or services. - **Fixed Operating Costs** are expenses that do not change with the level of sales. - **Net Operating Income** is the income after all operating expenses are deducted. - **Interest** is deducted to find the earnings before taxes. - **Earnings Before Taxes** (EBT) is the profit that remains after interest costs are deducted. - **Taxes** are calculated as 40% of the earnings before taxes. - **Net Income** is the final profit after all expenses, including taxes and interest, are deducted. ### Task Compute Surfside’s degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL).
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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