Statements of Financial Position 2020 2019 Cash $ 125 $ 80 Accounts receivable 68 48 Merchandise inventory 49 56 Long-term investments - 42 Property, plant, and equipment 215 178 Accumulated depreciation (57 ) (72 ) Total assets $ 400 $ 332 Accounts payable $ 48 62 Income taxes payable 5 6 Long-term borrowings 111 61 Contributed capital 180 160 Retained earnings 56 43 Total liabilities and shareholders’ equity $ 400 $ 332 Statement of Earnings Sales $ 200 Cost of sales (120 ) Gross profit 80 Depreciation expense (10 ) Other operating expenses (51 ) Earnings from operations 19 Gain on sale of investments 6 Loss on sale of equipment (2 ) Earnings before income tax 23 Income tax expense 6 Net earnings $ 17 LAPORTE INC. Statement of Cash Flows (Partial) For the Year Ended December 31, 2020 Cash flows from operating activities: Net earnings$17 Add (deduct) items not affecting cash: Decrease in accounts payable(14) Decrease in income tax payable(1) Decrease in merchandise inventory 7 Depreciation expense 10 Gain on sale of investments(6) Increase in accounts receivable(20) Loss on sale of equipment 2 Net cash used for operating activities $(5)
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.
| 2020 | 2019 | ||||||
| Cash | $ | 125 | $ | 80 | |||
| 68 | 48 | ||||||
| Merchandise inventory | 49 | 56 | |||||
| Long-term investments | - | 42 | |||||
| Property, plant, and equipment | 215 | 178 | |||||
| (57 | ) | (72 | ) | ||||
| Total assets | $ | 400 | $ | 332 | |||
| Accounts payable | $ | 48 | 62 | ||||
| Income taxes payable | 5 | 6 | |||||
| Long-term borrowings | 111 | 61 | |||||
| Contributed capital | 180 | 160 | |||||
| 56 | 43 | ||||||
| Total liabilities and shareholders’ equity | $ | 400 | $ | 332 | |||
| Statement of Earnings | |||||||
| Sales | $ | 200 | |||||
| Cost of sales | (120 | ) | |||||
| Gross profit | 80 | ||||||
| Depreciation expense | (10 | ) | |||||
| Other operating expenses | (51 | ) | |||||
| Earnings from operations | 19 | ||||||
| Gain on sale of investments | 6 | ||||||
| Loss on sale of equipment | (2 | ) | |||||
| Earnings before income tax | 23 | ||||||
| Income tax expense | 6 | ||||||
| Net earnings | $ | 17 | |||||
LAPORTE INC.
Statement of
For the Year Ended December 31, 2020
Cash flows from operating activities:
Net earnings$17
Add (deduct) items not affecting cash:
Decrease in accounts payable(14)
Decrease in income tax payable(1)
Decrease in merchandise inventory 7
Depreciation expense 10
Gain on sale of investments(6)
Increase in accounts receivable(20)
Loss on sale of equipment 2
Net cash used for operating activities $(5)
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