PR 16-1A Statement of cash flows-indirect method OBJ. 2 The comparative balance sheet of Navaria Inc. for December 31, 20Y3 and 20Y2, is shown as follows: Dec. 31, 20Y3 Dec. 31, 20Y2 Assets Cash $ 155,000 $ 150,000 Accounts receivable (net). 450,000 400,000 Inventories 770,000 750,000 Investments 100,000 Land .... 500,000 Equipment.... Accumulated depreciation-equipment 1,400,000 1,200,000 (600,000) (500,000) Total assets ... $2,675,000 $2,100,000 Liabilities and Stockholders' Equity Accounts payable $ 340,000 $ 300,000 Accrued expenses payable... Dividends payable. .... Common stock, $4 par...... Paid-in capital: Excess of issue price over par-common stock...... Retained earnings.. 45,000 50,000 30,000 25,000 700,000 600,000 200,000 175,000 1,360,000 950,000 Total liabilities and stockholders' equity... $2,675,000 $2,100,000 Additional data obtained from an examination of the accounts in the ledger for 20Y3 are as follows: a. The investments were sold for $175,000 cash. b. Equipment and land were acquired for cash. c. There were no disposals of equipment during the year. d. The common stock was issued for cash. e. There was a $500,000 credit to Retained Earnings for net income. f. There was a $90,000 debit to Retained Earnings for cash dividends declared. Instructions Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
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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