P1-5A Financial statement information about four different companies is as follows. Alpha Beta Psi Omega Company Company Company Company January 1, 2017 Assets $ 80,000 $ 90,000 (g) $150,000 Liabilities 41,000 (d) 80,000 (j) Owner’s equity (a) 40,000 49,000 90,000 December 31, 2017 Assets (b) 112,000 170,000 (k) Liabilities 60,000 72,000 (h) 100,000 Owner’s equity 50,000 (e) 82,000 151,000 Owner’s equity changes in year Additional investment (c) 8,000 10,000 15,000 Drawings 15,000 (f) 12,000 10,000 Total revenues 350,000 410,000 (i) 500,000 Total expenses 333,000 385,000 350,000 (l) Instructions (a) Determine the missing amounts. (Hint: For example, to solve for (a), Assets 2 Liabilities 5 Owner’s equity 5 $39,000.) (b) Prepare the owner’s equity statement for Alpha Company. (c) Write a memorandum explaining the sequence for preparing fi nancial statements and the interrelationship of the owner’s equity statement to the income statement and balance sheet.
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.
P1-5A Financial statement information about four different companies is as follows.
Alpha Beta Psi Omega
Company Company Company Company
January 1, 2017
Assets $ 80,000 $ 90,000 (g) $150,000
Liabilities 41,000 (d) 80,000 (j)
Owner’s equity (a) 40,000 49,000 90,000
December 31, 2017
Assets (b) 112,000 170,000 (k)
Liabilities 60,000 72,000 (h) 100,000
Owner’s equity 50,000 (e) 82,000 151,000
Owner’s equity changes in year
Additional investment (c) 8,000 10,000 15,000
Drawings 15,000 (f) 12,000 10,000
Total revenues 350,000 410,000 (i) 500,000
Total expenses 333,000 385,000 350,000 (l)
Instructions
(a) Determine the missing amounts. (Hint: For example, to solve for (a), Assets 2 Liabilities 5
Owner’s equity 5 $39,000.)
(b) Prepare the owner’s equity statement for Alpha Company.
(c) Write a memorandum explaining the sequence for preparing fi nancial statements and the interrelationship of the owner’s equity statement to the income statement
and balance sheet.
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