The comparative statement of financial position and statement of comprehensive income of Entity A on December 31, 20x1 are shown below: Entity A Statement of Comprehensive Income Entity A For the year ended December 31, 20x1 Statement of Financial Position As of December 31, 20x1 Sales 1,000,000 Cost of sales (600,000) ASSETS 20x1 20x0 GROSS PROFIT 400,000 Cash and cash equivalents 440,000 200,000 Rent income 150,000 Trade and other receivables 130,000 120,000 Depreciation expense (240,000) Inventory 120,000 480,000 Insurance expense (120,000) Prepaid assets 40,000 160,000 Bad debts expense (30,000) Total current assets 730,000 960,000 Loss on sale of equipment (40,000) PROFIT FOR THE YEAR 120,000 Property, plant & equipment 760,000 440,000 Other comprehensive income Total noncurrent assets 760,000 440,000 COMPREHENSIVE INCOME FOR THE YR. 120,000 TOTAL ASSETS 1,490,000 1,400,000 Additional information: Equipment with carrying amount of P240,000 was sold for P200,000 resulting to a loss on sale of P40,000. Acquisition of equipment for cash amounted to P800,000. Owner drawings totalled P90,000. LIABILITIES Trade and other payables 620,000 560,000 EQUITY Owner's capital 870,000 840,000 Requirement: Prepare the statement of cash flows in good form using INDIRECT METHOD. Be sure to provide a proper heading for the TOTAL LIABILITIES & EQUITY 1,490,000 1,400,000 statement.
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.
Prepare the statement of
INDIRECT METHOD. Be sure to provide a proper heading for the
statement. Thank you.
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