MONTGOMERY INCORPORATED Comparative Balance Sheets At December 31 Current Year Prior Year Assets Cash $ 53,800 13,400 120,100 187,300 66,500 (30,100) $ 223, 700 $ 53,900 16,400 94,800 165, 100 56,100 (20,700) $ 200,500 Accounts receivable, net Inventory Total current assets Equipment Accumulated depreciation-Equipment Total assets Liabilities and Equity Accounts payable Salaries payable $ 32,000 $ 34,400 600 800 35,200 Total current liabilities Equity Common stock, no par value Retained earnings 32,600 159,400 31,700 147,900 17,400 $ 200,500 Total liabilities and equity $ 223,700 MONTGOMERY INCORPORATED Income Statement For Current Year Ended December 31 Sales Cost of goods sold Gross profit Salaries expense Depreciation expense Income before taxes $ 60,900 (25,300) 35,600 7,400 9,400 18,800 Income tax expense 4,500 Net income $ 14,300 Additional Information on Current-Year Transactions a. No dividends are declared or paid. b. Issued additional stock for $11,500 cash. c. Purchased equipment for cash: no equinment was sold
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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