P1-1Preparing an Income Statement, Statement of Stockholders' Equity, and Balance Sheet Assume that you are the president of Highlight Construction Company. At the end of the first year (December 31, 2014) of operations, the following financial data for the company are available: HIGHLIGHT CONSTRUCTION COMPANY For the Year Ended December 31, 2014 Total sales revenue $______ Total expenses Pretax income _______ Income tax expense _______ Net income $ B. HIGHLIGHT CONSTRUCTION COMPANY Statement of Stockholders’ Equity Common Stock Retained Earnings Balance December 31, 2013 $ $ Stock issuance +Net income –Dividends $ 87,000 Balance December 31, 2014 $ $ C. Balance Sheet Asset Cash $ Receivables from customers Inventory of merchandise Equipment $ 87,000 Total assets $159,400 Liabilities Accounts payable $ Salary payable $ Total liabilities $ Stockholders' Equity Common stock Retained earnings $ Total stockholders' equity $ Total liabilities and stockholders’ equity $
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.
P1-1Preparing an Income Statement, Statement of
HIGHLIGHT CONSTRUCTION COMPANY
For the Year Ended December 31, 2014
Total sales revenue $______
Total expenses
Pretax income _______
Income tax expense _______
Net income $
B.
HIGHLIGHT CONSTRUCTION COMPANY
Statement of Stockholders’ Equity
Common Stock
Balance December 31, 2013 $ $
Stock issuance
+Net income
–Dividends $ 87,000
Balance December 31, 2014 $ $
C.
Balance Sheet
Asset
Cash $
Receivables from customers
Inventory of merchandise
Equipment $ 87,000
Total assets $159,400
Liabilities
Accounts payable $
Salary payable $
Total liabilities $
Stockholders' Equity
Common stock
Retained earnings $
Total stockholders' equity $
Total liabilities and stockholders’ equity $
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