MONTGOMERY INC.Comparative Balance SheetsDecember 31 Current Year Prior Year Assets Cash $ 30,800 $ 31,000 Accounts receivable, net 8,900 10,900 Inventory 79,800 63,000 Total current assets 119,500 104,900 Equipment 44,200 37,300 Accum. depreciation—Equipment (19,900 ) (13,800 ) Total assets $ 143,800 $ 128,400 Liabilities and Equity Accounts payable $ 21,200 $ 22,900 Salaries payable 400 500 Total current liabilities 21,600 23,400 Equity Common stock, no par value 102,400 94,100 Retained earnings 19,800 10,900 Total liabilities and equity $ 143,800 $ 128,400 MONTGOMERY INC.Income StatementFor Current Year Ended December 31 Sales $ 38,500 Cost of goods sold (16,000 ) Gross profit 22,500 Operating expenses Depreciation expense $ 6,100 Other expenses 4,700 Total operating expense 10,800 Income before taxes 11,700 Income tax expense 2,800 Net income $ 8,900 Additional Information on Current-Year Transactions No dividends are declared or paid. Issued additional stock for $8,300 cash. Purchased equipment for cash; no equipment was sold. 1. Use the above information to prepare a statement of cash flows for the current year using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)
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.
| MONTGOMERY INC. Comparative Balance Sheets December 31 |
||||||||||||
| Current Year | Prior Year | |||||||||||
| Assets | ||||||||||||
| Cash | $ | 30,800 | $ | 31,000 | ||||||||
| 8,900 | 10,900 | |||||||||||
| Inventory | 79,800 | 63,000 | ||||||||||
| Total current assets | 119,500 | 104,900 | ||||||||||
| Equipment | 44,200 | 37,300 | ||||||||||
| Accum. |
(19,900 | ) | (13,800 | ) | ||||||||
| Total assets | $ | 143,800 | $ | 128,400 | ||||||||
| Liabilities and Equity | ||||||||||||
| Accounts payable | $ | 21,200 | $ | 22,900 | ||||||||
| Salaries payable | 400 | 500 | ||||||||||
| Total current liabilities | 21,600 | 23,400 | ||||||||||
| Equity | ||||||||||||
| Common stock, no par value | 102,400 | 94,100 | ||||||||||
| 19,800 | 10,900 | |||||||||||
| Total liabilities and equity | $ | 143,800 | $ | 128,400 | ||||||||
| MONTGOMERY INC. Income Statement For Current Year Ended December 31 |
|||||||
| Sales | $ | 38,500 | |||||
| Cost of goods sold | (16,000 | ) | |||||
| Gross profit | 22,500 | ||||||
| Operating expenses | |||||||
| Depreciation expense | $ | 6,100 | |||||
| Other expenses | 4,700 | ||||||
| Total operating expense | 10,800 | ||||||
| Income before taxes | 11,700 | ||||||
| Income tax expense | 2,800 | ||||||
| Net income | $ | 8,900 | |||||
Additional Information on Current-Year Transactions
- No dividends are declared or paid.
- Issued additional stock for $8,300 cash.
- Purchased equipment for cash; no equipment was sold.
1. Use the above information to prepare a statement of
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