The following income statement and selected halance sheet account data are available for Treece, Inc., at December 31, 2018. TREECE, INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 20018 Revenue: - Net sales $2,850,000 - Dividend income 104,000 - Interest income 70,000 Gain on sales of marketable securities 4,000 Total revenue and gains $3,028,000 Costs and expenses: - Cost of goods sold $1,550,000 Operating expenses 980,000 - Interest expense 185,000 Income tax expense 90,000 Total costs and expenses 2,805,000 Net income $ 223,000 Beginning of Year End of Year Selected account balances: Accounts receivable $ 650,000 $ 720,000 Accrued interest receivable 9,000 6,000 800,000 765,000 Inventories . Short-term prepayments 20,000 15,000 Accounts payable (merchandise suppliers) Accrued operating expenses payable 570,000 562,000 65,000 94,000 21,000 12,000 Accrued interest payable 22,000 35,000 Accrued income taxes payable
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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