Presented below is an income statement for Kinder Company for the year ended December 31, 2016. Kinder Company Income Statement For the Year Ended December 31, 2016 Net sales P800,000 Costs and expenses: Cost of goods sold 560,000 Selling, general, and administrative expenses 70,000 Other, net 20,000 Total costs and expenses 650,000 Income before income taxes 150,000 Income taxes 45,000 Net income P105,000 Additional information: "Selling, general, and administrative expenses" included a usual but infrequent charge of P7,000 due to a loss on the sale of investments. "Other, net" consisted of interest expense, P10,000, and an extraordinary loss of P10,000 before taxes due to earthquake damage. If the extraordinary loss had not occurred, income taxes for 2016 would have been P24,000 instead of P21,000. Kinder had 20,000 shares of common stock outstanding during 2016. Required: Prepare a corrected income statement.
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 is an income statement for Kinder Company for the year ended December 31, 2016.
Kinder Company
Income Statement
For the Year Ended December 31, 2016
Net sales P800,000
Costs and expenses:
Cost of goods sold 560,000
Selling, general, and administrative expenses 70,000
Other, net 20,000
Total costs and expenses 650,000
Income before income taxes 150,000
Income taxes 45,000
Net income P105,000
Additional information:
- "Selling, general, and administrative expenses" included a usual but infrequent charge of P7,000 due to a loss on the sale of investments.
- "Other, net" consisted of interest expense, P10,000, and an extraordinary loss of P10,000 before taxes due to earthquake damage. If the extraordinary loss had not occurred, income taxes for 2016 would have been P24,000 instead of P21,000.
- Kinder had 20,000 shares of common stock outstanding during 2016.
Required: Prepare a corrected income statement.
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