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.
![The
following
data
represent
selected
information
from
the
comparative Income Statement and Balance Sheet for Starla Company for the years
ended December 31,2019 and 2020:
2020
201 9
Net Sales (all on Credit)
Cost of Goods Sold
Gross Profit
Income from operations
Interest Expense
Net Income
Cash
Accounts receivable, net
Inventory
Prepaid Expenses
Total Current Assets
Total Noncurrent Assets
Total Current Liabilities
Total Noncurrent Liabilities
Ordinary Share capital,no-par*
Retained earnings
P370,000
160,000
210,000
95,000
8,000
70,000
10,000
30,000
43,000
5,000
88,000
112,000
70,000
40,000
60,000
30,000
P333,000
150,000
183,000
87,000
8,000
57,000
14,000
25,000
40,000
7,000
86,000
104,000
60,000
45,000
60,000
25,000
*Note:10,000 ordinary shares have been issued and outstanding since the company was established.
They had a market value of P90 per share at 12/31/19 and they were selling for P91.50 per share at
P91.50 per share at 12/31/2020.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc5b506b2-7563-48ad-8802-a875a0dd0287%2Fab540d0f-7d54-487a-a8ea-d54004194ecc%2Fltutrmm_processed.png&w=3840&q=75)
![Required: Compute the following ratios for 2020:
1. Current Ratio
2. Quick Ratio
3. Receivable Turnover
4. Average Collection Period
5. Inventory Turnover
6. Average Sales Period
7. Working Capital
8. Debt Ratio
9. Equity Ratio
10. Debt to Equity Ratio
11. Time Interest Earned
12. Gross Profit Ratio
13. Operating Profit Margin
14. Net Profit Margin
15. Return on Assets](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc5b506b2-7563-48ad-8802-a875a0dd0287%2Fab540d0f-7d54-487a-a8ea-d54004194ecc%2F3x1q32k_processed.png&w=3840&q=75)
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