Simon Company’s year-end balance sheets follow. At December 31 Current Yr 1 Yr Ago 2 Yrs Ago Assets Cash $ 31,800 $ 35,625 $ 37,800 Accounts receivable, net 89,500 62,500 50,200 Merchandise inventory 112,500 82,500 54,000 Prepaid expenses 10,700 9,375 5,000 Plant assets, net 278,500 255,000 230,500 Total assets $ 523,000 $ 445,000 $ 377,500 Liabilities and Equity Accounts payable $ 129,900 $ 75,250 $ 51,250 Long-term notes payable secured by mortgages on plant assets 98,500 101,500 83,500 Common stock, $10 par value 163,500 163,500 163,500 Retained earnings 131,100 104,750 79,250 Total liabilities and equity $ 523,000 $ 445,000 $ 377,500 (1-a) Compute the current ratio for each of the three years. (1-b) Did the current ratio improve or worsen over the three year period? (2-a) Compute the acid-test ratio for each of the three years. (2-b) Did the acid-test ratio improve or worsen over the three year period?
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.
Simon Company’s year-end
| At December 31 | Current Yr | 1 Yr Ago | 2 Yrs Ago | ||||||||
| Assets | |||||||||||
| Cash | $ | 31,800 | $ | 35,625 | $ | 37,800 | |||||
| 89,500 | 62,500 | 50,200 | |||||||||
| Merchandise inventory | 112,500 | 82,500 | 54,000 | ||||||||
| Prepaid expenses | 10,700 | 9,375 | 5,000 | ||||||||
| Plant assets, net | 278,500 | 255,000 | 230,500 | ||||||||
| Total assets | $ | 523,000 | $ | 445,000 | $ | 377,500 | |||||
| Liabilities and Equity | |||||||||||
| Accounts payable | $ | 129,900 | $ | 75,250 | $ | 51,250 | |||||
| Long-term notes payable secured by mortgages on plant assets |
98,500 | 101,500 | 83,500 | ||||||||
| Common stock, $10 par value | 163,500 | 163,500 | 163,500 | ||||||||
| 131,100 | 104,750 | 79,250 | |||||||||
| Total liabilities and equity | $ | 523,000 | $ | 445,000 | $ | 377,500 | |||||
(1-a) Compute the
(1-b) Did the current ratio improve or worsen over the three year period?
(2-a) Compute the acid-test ratio for each of the three years.
(2-b) Did the acid-test ratio improve or worsen over the three year period?
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