Presented below are data taken from the records of Natural Homes Company. December 31, 2012 December 31, 2011 Cash 15,000 $5,000 Current assets other than cash 105,000 129,000 Long-term investments 60,000 50,000 Plant assets 330,000 351,000 $510,000 $535,000 Accumulated depreciation $88,000 $102,000 Current liabilities 65,000 73,000 Bonds payable 50,000 100,000 Capital stock 173,000 153,000 Retained earnings 134,000 107,000 $510,000 $535,000 Additional information: 1. Held-to-maturity securities carried at a cost of $25,000 on December 31, 2011, were sold in 2012 for $30,000. The gain (not extraordinary) was incorrectly charged directly to Retained Earnings. 2. Fully depreciated plant assets that cost $57,000 were sold during 2012 for $2,000. The gain (not extraordinary) was incorrectly charged directly to Retained Earnings. 3. Net income as reported on the income statement for the year was $40,000. 4. Dividends paid amounted to $20,000. 5. Depreciation charged for the year was $43,000. Prepare a statement of cash flows for the year 2012 using the indirect method.
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.
Presented below are data taken from the records of Natural Homes Company.
December 31, 2012 December 31, 2011
Cash 15,000 $5,000
Current assets other than cash 105,000 129,000
Long-term investments 60,000 50,000
Plant assets 330,000 351,000
$510,000 $535,000
Current liabilities 65,000 73,000
Bonds payable 50,000 100,000
Capital stock 173,000 153,000
$510,000 $535,000
Additional information:
1. Held-to-maturity securities carried at a cost of $25,000 on December 31, 2011, were sold in 2012 for $30,000. The gain (not extraordinary) was incorrectly charged directly to Retained Earnings.
2. Fully
3. Net income as reported on the income statement for the year was $40,000.
4. Dividends paid amounted to $20,000.
5. Depreciation charged for the year was $43,000.
Prepare a statement of
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