KPC Corporation's balance sheet and income statement is listed below. Balance Sheet This Year Last Year Cash 50,000 40,000 Accounts receivable 80,000 60,000 Inventories 180,000 110,000 Plant & equipment 300,000 260,000 Less accumulated depreciation -40,000 -20,000 Total assets 570.000 450.000 Accounts payable 100,000 150,000 Accrued liabilities 70,000 50,000 80,000 Mortgage payable Common stock 130,000 90,000 Retained earnings 190,000 160,000 Total liabilities and equity 570.000 450.000 Income Statement This Year Last Year Net Sales 680,000 600,000 Less Cost of goods sold 410,000 330,000 Gross profit 270,000 270,000 190.000 192.000 Operating expenses Operating income 80,000 78,000 7,000 2,000 Interest expense Profit before taxes Taxes 73,000 76,000 22,000 22,800 Net income 51,000 53,200 Other data: • Cash dividends paid this year were $21,000. • The change in accumulated depreciation account is the depreciation for the year.
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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