Required a. For the balance sheet, identify how each transaction affects total assets, total liabilities, and total eq- uity. For the income statement, identify how each transaction affects net income. þ. For the statement of cash flows, identify how each transaction affects cash flows from operating ac- tivities, cash flows from investing activities, and cash flows from financing activities. Income Balance Sheet Statement Statement of Cash Flows Financing Activities Total Total Total Net Operating Investing Activities Transaction Assets Liab. Equity Income Activities Owner Invests $800 cash In buslness +800 +800 +800 Purchases $100 of supplies on credit Buys equipment for $400 cash 4 Provides services for $900 cash Pays $400 cash for rent Incurred 6 Buys $200 of equlpment on credit 7 Pays $300 cash for wages Incurred 8. Owner withdraws $50 cash Provides $600 services on credit 10 Collects $600 cash on accounts recelvable 3. 9.
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.
Identify how each of the following separate transactions 1 through 10 affects financial statements. For increases, place a “+” and the dollar amount in the column or columns. For decreases, place a “−” and the dollar amount in the column or columns. Some cells may contain both an increase (+) and a decrease (−) along with dollar amounts. The first transaction is completed as an example.
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