Hagag Company uses the indirect method to prepare its statement of cash flows. Please refer to the following sections of the company’s comparative balance sheet and complete the fourth column to show the increase or decrease for each item listed. Please use the correct sign for each item to gain the full mark assigned (for example if the figure is negative, this must be clearly stated with brackets or with the minus sign): 2014 2013 Increase/decrease Accounts payable $ 4,000 $ 6,000 Accrued liabilities 2,000 1,000 Long-term notes payable 84,000 90,000 Total liabilities $ 90,000 $ 97,000 Common stock 30,000 2,000 Retained earnings 113,000 74,000 Treasury stock (8,000) (5,000) Total equity $135,000 $ 71,000 Total liabilities and equity $225,000 $168,000 The company also provided the following additional information: No stock was retired. No treasury stock was sold. During 2014, the company repaid $40,000 of long-term notes payable. During 2014, the company borrowed $34,000 on a new note payable. Net income for the year was $49,000. From the info presented above, prepare the financing section of the statement of cash flows using the following format: Financing activities: Issuance of stock Purchase of treasury stock Sale of treasury stock Borrowing on notes payable Repayments of notes payable Payment of dividends Net cash from financing activities
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.
Hagag Company uses the indirect method to prepare its statement of
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|
2014 |
2013 |
Increase/decrease |
|
Accounts payable |
$ 4,000 |
$ 6,000 |
|
|
Accrued liabilities |
2,000 |
1,000 |
|
|
Long-term notes payable |
84,000 |
90,000 |
|
|
Total liabilities |
$ 90,000 |
$ 97,000 |
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|
|
|
|
|
Common stock |
30,000 |
2,000 |
|
|
|
113,000 |
74,000 |
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|
|
(8,000) |
(5,000) |
|
|
Total equity |
$135,000 |
$ 71,000 |
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|
|
|
|
|
|
Total liabilities and equity |
$225,000 |
$168,000 |
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The company also provided the following additional information:
- No stock was retired.
- No treasury stock was sold.
- During 2014, the company repaid $40,000 of long-term notes payable.
- During 2014, the company borrowed $34,000 on a new note payable.
- Net income for the year was $49,000.
From the info presented above, prepare the financing section of the statement of cash flows using the following format:
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Financing activities: |
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Issuance of stock |
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Purchase of treasury stock |
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Sale of treasury stock |
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Borrowing on notes payable |
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Repayments of notes payable |
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Payment of dividends |
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Net cash from financing activities |
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