The following information applies to the questions displayed below.] Ravenna Company is a merchandiser that uses the indirect method to prepare the operating activities section of its statement of cash flows. Its balance sheet for this year is as follows: Ending Balance Beginning Balance Cash and cash equivalents $ 102,000 $ 122,400 Accounts receivable 81,700 88,000 Inventory 109,700 100,000 Total current assets 293,400 310,400 Property, plant, and equipment 291,000 280,000 Less accumulated depreciation 97,000 70,000 Net property, plant, and equipment 194,000 210,000 Total assets $ 487,400 $ 520,400 Accounts payable $ 64,000 $ 113,700 Income taxes payable 49,700 65,700 Bonds payable 120,000 100,000 Common stock 140,000 120,000 Retained earnings 113,700 121,000 Total liabilities and stockholders’ equity $ 487,400 $ 520,400 During the year, Ravenna paid a $12,000 cash dividend and it sold a piece of equipment for $6,000 that had originally cost $13,800 and had accumulated depreciation of $9,200. The company did not retire any bonds or repurchase any of its own common stock during the year. 5-a. What is the amount and direction (+ or −) of the accounts receivable adjustment to net income in the operating activities section of the statement of cash flows? 5-b. What does this adjustment represent?
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.
[The following information applies to the questions displayed below.]
Ravenna Company is a merchandiser that uses the indirect method to prepare the operating activities section of its statement of
| Ending Balance | Beginning Balance | ||||
| Cash and cash equivalents | $ | 102,000 | $ | 122,400 | |
| 81,700 | 88,000 | ||||
| Inventory | 109,700 | 100,000 | |||
| Total current assets | 293,400 | 310,400 | |||
| Property, plant, and equipment | 291,000 | 280,000 | |||
| Less |
97,000 | 70,000 | |||
| Net property, plant, and equipment | 194,000 | 210,000 | |||
| Total assets | $ | 487,400 | $ | 520,400 | |
| Accounts payable | $ | 64,000 | $ | 113,700 | |
| Income taxes payable | 49,700 | 65,700 | |||
| Bonds payable | 120,000 | 100,000 | |||
| Common stock | 140,000 | 120,000 | |||
| 113,700 | 121,000 | ||||
| Total liabilities and |
$ | 487,400 | $ | 520,400 | |
During the year, Ravenna paid a $12,000 cash dividend and it sold a piece of equipment for $6,000 that had originally cost $13,800 and had accumulated depreciation of $9,200. The company did not retire any bonds or repurchase any of its own common stock during the year.
5-a. What is the amount and direction (+ or −) of the accounts receivable adjustment to net income in the operating activities section of the statement of cash flows?
5-b. What does this adjustment represent?
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