MONTGOMERY INC. Comparative Balance Sheets December 31 Current Year Prior Year Assets $ 58,600 17,300 155,100 231,000 85,900 (38,900) $ 59,000 21, 200 122,500 202,700 72,500 (26,800) Cash Accounts receivable, net Inventory Total current assets Equipment Accum. depreciation-Equipment Total assets $278,000 $248,400 Liabilities and Equity Accounts payable Salaries payable Total current liabilities Equity Common stock, no par value Retained earnings $ 44,500 1,000 45,500 $ 41,400 800 42,200 196, 200 181,100 39,600 21,800 Total liabilities and equity $278,000 $248,400 MONTGOMERY INC. Income Statement For Current Year Ended December 31 $ 76, 600 (31,800) 44, 800 Sales Cost of goods sold Gross profit Operating expenses Depreciation expense Other expenses Total operating expense Income before taxes $12,100 9,300 21,400 23,400 5,600 $ 17,800 Income tax expense Net income Additional Information on Current-Year Transactions a. No dividends are declared or paid. b. Issued additional stock for $15,100 cash. c. 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.
Use the above information to prepare a statement of
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