FINANCIAL STATEMENT ANALYSIS AND RATIO ANALYSIS The following are the balance sheet and income statement data of PRT Company: December 31 1997 1998 Balance Sheet Accounts Cash P30,000 P52,000 Marketable Securities 170,000 200,000 100,000 200,000 Accounts Receivable, net Inventories 150,000 100,000 340,000 300,000 Machinery and Equipment, net Land and Building, net Goodwill 110,000 100,000 80,000 80,000 20,000 18,000 20,000 30,000 Deferred Charges Notes Payable, Trade Accounts Payable, Trade Expenses Payable 122,000 158,000 8,000 12,000 500,000 450,000 Long-term Notes-Due 2008 15% Preferred Stock, P100 par 100,000 100,000 Common Stock, P10 par 200,000 200,000 Retained Earnings 50,000 100,000 1998 Income Statement Accounts Sales P1,050,000 50,000 Sales Returns and Allowances 100,000 Inventory, December 31, 1998 Inventory, December 31, 1997 Purchases 150,000 550,000 Selling Expenses 80,000 120,000 Administrative Expenses (including depreciation of P25,000) Interest on Long-term Notes 50,000 Income Taxes, 35% 52,500 Additional Information: 1. Dividends paid on preferred stock 15,000 2. Dividends paid on common stock 32,500 3. Market price per share of common stock 18 2. Prepare income statement for the year ended December 31, 1998 with common-size percentages (Vertical Analysis).
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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