Problem 11-4A Prepare a statement of cash flows-indirect method (LO11-2, 11-3, 11-4, 11-5) The income statement, balance sheets, and additional information for Video Phones, Inc., are provided. VIDEO PHONES, INC. Income Statement For the Year Ended December 31, 2021 Net sales Expenses: Cost of goods sold Operating expenses Depreciation expense Loss on sale of land Interest expense Income tax expense Total expenses Net income Assets Current assets: Cash Accounts receivable Inventory Prepaid rent Long-term assets: Investments Accounts payable Interest payable $2,450,000 958,000 37,000 9,000 20,000 58,000 Land Equipment Accumulated depreciation Total assets Liabilities and Stockholders' Equity Current liabilities: Additional Information for 2021: $3,636,000 3,532,000 $ 104,000 VIDEO PHONES, INC. Balance Sheets December 31 Income tax payable Long-term liabilities: Notes payable Stockholders' equity: Common stock Retained earnings Total liabilities and stockholders' equity $ 2021 254,600 92,000 105,000 14,400 115,000 220,000 290,000 (81,000) $1,010,000 $ 75,000 7,000 16,000 305,000 400,000 207,000 $1,010,000 2020 $227,800 70,000 145,000 7,200 0 260,000 220,000 (44,000) $886,000 $ 91,000 12,000 ,000 235,000 400,000 133,000 $886,000
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.
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