Question 2 Fresh Catch Pte Ltd is an importer and distributor of seafood in Singapore. The following is the Statement of Cash Flows for Fresh Catch Pte Ltd for the financial year ended 31 December 2022. Fresh Catch Pte Ltd Statement of Cash Flows (Indirect Method) For Year Ended 31 December 2022 Cash flows from operating activities Profit before tax Adjustments to reconcile profit to net cash provided by operating activities Depreciation expenses Increase in accounts receivable Decrease in accounts payable Increase in inventories Cash generated from operations Income tax paid Net cash provided by operating activities Cash flows from investing activities Cash paid for an auto-packaging system* Net cash used in investing activities Cash flows from financing activities Repayment of debt Net cash provided by financing activities Net decrease in cash Cash balance at 1 January 2022 Cash balance at 31 December 2022 54,600 (30,700) (16,650) (194,350) (100,000) (50,000) S 249,375 (187,100) 62,275 (43,875) 18,400 (100,000) (50,000) (131,600) 205,670 74,070 *The auto-packaging system is expected to help to overcome manpower shortages faced by the company. Required: The CEO was puzzled that despite a net profit of $249,375, the bank account decreased from $205,670 on 31 December 2022 to $74,070 on 1 January 2022. Examine and explain to the CEO the main causes and comment on the company's cash level. (b) Based on the Statement of Cash Flows, identify the possible business actions, Fresh Catch Pte Ltd can take to improve cash flows from operations.
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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