The following balance sheet for the Los Gatos Corporation was prepared by a recently hired accountant. In reviewing the statement you notice several errors. LOS GATOS CORPORATION Balance Sheet At December 31, 2024 Assets Cash $ 44,000 Accounts receivable 86,000 Inventory 57,000 Machinery (net)
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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The following
| LOS GATOS CORPORATION | |
|---|---|
| Balance Sheet | |
| At December 31, 2024 | |
| Assets | |
| Cash | $ 44,000 |
| 86,000 | |
| Inventory | 57,000 |
| Machinery (net) | 122,000 |
| Franchise (net) | 32,000 |
| Total assets | $ 341,000 |
| Liabilities and Shareholders’ Equity | |
| Accounts payable | $ 54,000 |
| Allowance for uncollectible accounts | 7,000 |
| Notes payable | 59,000 |
| Bonds payable | 112,000 |
| Shareholders’ equity | 109,000 |
| Total liabilities and shareholders’ equity | $ 341,000 |
Additional Information:
- Cash includes a $22,000 restricted amount to be used for repayment of the bonds payable in 2028.
- The cost of the machinery is $194,000.
- Accounts receivable includes a $22,000 notes receivable from a customer due in 2027.
- The notes payable balance includes accrued interest of $7,000. Principal and interest are both due on February 1, 2025.
- The company began operations in 2019. Net income less dividends since inception of the company totals $37,000.
- 52,000 shares of no par common stock were issued in 2019. 200,000 shares are authorized.
Required:
Prepare a corrected, classified balance sheet. Use the additional information to help determine appropriate classifications and account balances. The cost of machinery and its
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