P3-6 (Algo) Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit Margin Ratio LO3-4, 3-5, 3-6 [The following information applies to the questions displayed below.] Following are account balances (in millions of dollars) from a recent State Ex annual report, followed by several typical transactions. Assume that the following are account balances on May 31 (end of the prior fiscal year): Account Property and equipment (net) Retained earnings Accounts payable Prepaid expenses Accrued expenses payable. Long-term notes payable Other noncurrent assets Common stock (50.10 par value) Balance Account $18,494 Receivables 14,206 Other current assets 1,717 Cash: 338 Spare parts, supplies, and fuel 2,530 Other noncurrent liabilities 1,950 Other current liabilities 3,242 Additional Paid-in Capital 4 Balance $2,699 1,109 1,344 857 3,980 2,399 1,297 These accounts are not necessarily in good order and have normal debit or credit balances. Assume the following transactions (in millions, except for par value) occurred the next fiscal year beginning June 1 (the current year): f. Repaid $380 on a long-term note (ignore interest). g. Issued 250 million additional shares of $0.10 par value stock for $39 (that's $39 million). h. Paid employees $15,026 for work during the year. a. Provided delivery service to customers, who paid $12,890 in cash and owed $40,704 on account. b. Purchased new equipment costing $3,894; signed a long-term note. c. Paid $12,464 cash to rent equipment and aircraft, with $6,586 for rent this year and the rest for rent next year. d. Spent $1,324 cash to repair facilities and equipment during the year. e. Collected $38,085 from customers on account.
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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