Prepare a Statement of Cash Flows for the year ended Dec. 31, 2019, using the indirect method. Cash balance at prior year-end$42,000Gain on sale of machinery$2,000 Increase in inventory$6,000Cash received from sale of machinery$9,500 Depreciation expense$4,000Increase in accounts payable$2,500 Cash received from issuing stock$6,000Net income$23,000 Cash paid for dividends $1,000 Decrease in accounts receivable$3,000 We bought a car for $40,000, nothing down, and signed a 4 year note for $40,000 to pay for it. Be sure to include totals for cash from operations, investing and financing. Include what you think the cash balance on Dec. 31, 2019 is. Assume that we bought the car by signing the note on December 31, so there was no interest.
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.
Prepare a Statement of Cash Flows for the year ended Dec. 31, 2019, using the indirect method.
Cash balance at prior year-end$42,000Gain on sale of machinery$2,000
Increase in inventory$6,000Cash received from sale of machinery$9,500
Cash received from issuing stock$6,000Net income$23,000
Cash paid for dividends $1,000 Decrease in accounts receivable$3,000
We bought a car for $40,000, nothing down, and signed a 4 year note for $40,000 to pay for it.
Be sure to include totals for cash from operations, investing and financing. Include what you think the cash balance on Dec. 31, 2019 is.
Assume that we bought the car by signing the note on December 31, so there was no interest.
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