Presented below are the comparative income and retained earnings statements for Denise Habbe Inc. for the years 2025 and 2026. 2026 $340,000 200,000 140,000 128,000 88,000 50,000 $52,000 $78,000 Retained earnings (Jan. 1) $125,000 $72,000 Sales Cost of sales Gross profit Expenses 2025 $270,000 142,000 Net income
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.
Subject: accounting
![Presented below are the comparative income and retained earnings statements for Denise Habbe Inc. for the years 2025 and 2026.
Sales
Cost of sales
Gross profit
Expenses
Net income
Retained earnings (Jan. 1)
Net income
1.
2026
$340,000
200,000
2.
140,000
88,000
$52,000
$125,000
Captured screenshot
Retained earnings (Dec. 31) $147,000
M: [
52,000
D)
The following additional information is provided:
2025
$270,000
142,000
128,000
50,000
$78,000
$72,000
78,000
(25,000)
$125,000
In 2026, Denise Habbe Inc. decided to switch its depreciation method from sum-of-the-years' digits to the straight-line
method. The assets were purchased at the beginning of 2025 for $100,000 with an estimated useful life of 4 years and no
salvage value. (The 2026 income statement contains depreciation expense of $30,000 on the assets purchased at the
beginning of 2025.)
In 2026, the company discovered that the ending inventory for 2025 was overstated by $24,000; ending inventory for 2026 is
correctly stated.
Prepare the revised retained earnings statement for 2025 and 2026, assuming comparative statements. (Ignore income taxes.)
DENISE HABBE INC.
Retained Earnings Statement
For the Year Ended
2026
2025](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc7fe5a73-45e4-4166-8ba1-50e355550dfc%2F18077190-1bc1-408d-a4ce-229dc874ebce%2Fqmyjyme_processed.jpeg&w=3840&q=75)
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