Prepare a multi-step income statement for the year ended December 31, 2020. Home City Furnishings Income Statement For the Year Ended December 31, 2020
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.
Income Statement:
The income statement reports the financial performance in terms of profit or loss accounts for a specific accounting period. It is computed by subtracting the total expenses from the total revenue earned during the accounting period as required. It can be prepared in two formats, Single-Step Income Statement or Multi-Step Income Statement.
As required, we are required to prepare the income statement using a Multi-Step Income Statement, let us discuss how to prepare and calculate the net operating income.
Multi-Step Income Statement:
The Multi-Step Income Statement is prepared in two sections, the Operating Section and the Non-Operating Section. The operating section is further divided into two parts, the first part is where we compute the Gross Profit by subtracting the cost of goods sold from the Net Sales Revenue. The second part is where we compute the Operating Income by subtracting all the operating expenses like Selling and Administrative expenses from the Gross Profit.
The Non-Operating Section includes all the revenues and expenses which are not related to the core business activities. We subtract the non-operating expenses and add the non-operating income to compute the Net Income for the accounting period.
Now, let us prepare the income statement for H C Furnishing Company as under:
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
