Taxable income and pretax financial income would be identical for Carla Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared. Taxable income Excess of revenues over expenses (excluding two temporary differences) Installment gross profit collected Expenditures for warranties Taxable income Pretax financial income Excess of revenues over expenses (excluding two temporary differences) Installment gross profit recognized Estimated cost of warranties Income before taxes 2019 $155.000 8,000 (4,800 ) $158,200 2019 $155,000 24,000 (14.400) $164.600 2020 $218,000 8,000 (4,800 ) $221,200 2020 $218,000 -0- -0- $218,000 2021 $88,600 8,000 (4.800 ) $91,800 2021 $88,600 -0- -0- $88,600 The tax rates in effect are 2019, 40% ; 2020 and 2021, 45%. All tax rates were enacted into law on January 1, 2019. No deferred income taxes existed at the beginning of 2019. Taxable income is expected in all future years. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019, 2020. 2021 (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required,
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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