The income statement and comparative balance sheets for Mug Shots, Inc., (a photography studio) ar below. MUG SHOTS, INC. Income Statement For Month Ended December 31 Revenue Sales revenue MUG SHOTS, INC. Comparative Balance Sheets Assets Cash Dec. 31 Nov. 30 $12,840 $6,000
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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![Reconciling Cash Flows from Operations to Net Income
The income statement and comparative balance sheets for Mug Shots, Inc., (a photography studio) are presented
below.
MUG SHOTS, INC.
Income Statement
For Month Ended December 31
Revenue
Sales revenue
Expenses
Cost of goods sold
Wages expense
Interest expense
Advertising expense
Rent expense
Depreciation expense
Total expenses
Income before taxes
Income tax expense
Net income
$20,040
5,640
360
2,160
1,800
840
$37,200
30,840
6,360
2,226
$4,134
MUG SHOTS, INC.
Comparative Balance Sheets
Assets
Cash
Accounts receivable
Inventory
Prepaid rent
Equipment
Accumulated depreciation
Total assets
Liabilities
Accounts payable
Interest payable
Wages payable
Income tax payable
Unearned revenue
Notes payable
Equity
Common stock
Retained earnings
Total liabilities and equity
Dec. 31 Nov. 30
$12,840 $6,000
3,000
38,760 28,800
9,000
10,800
36,000 21,600
-840
0
$98,760 $67,200
$30,000 $28,800
360
2,640
2,226
600
36,000
14,400
24,000 24,000
2,934
0
$98,760 $67,200](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe69a499e-b081-4a08-acaa-9c7a9864cab2%2F0281c303-6acf-47e9-9159-14ba15932302%2Fsvih3dj_processed.jpeg&w=3840&q=75)
![Required
Compute cash flows from operating activities for Mug Shots, Inc., using the indirect method.
MUG SHOTS, INC.
Cash Flow from Operating Activities-Indirect Method
Net income
Adjustments:
Depreciation expense
Adjust for changes in:
Accounts receivable
Inventory
Prepaid rent
Unearned revenue
Accounts payable
Wages payable
Interest payable
Income tax payable
Total adjustments
Cash flow from operating activities
$
0
0
0
0
0
0
0
0
0
$
LA
$
LA
0
0
0](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe69a499e-b081-4a08-acaa-9c7a9864cab2%2F0281c303-6acf-47e9-9159-14ba15932302%2Fkz1yhr_processed.jpeg&w=3840&q=75)
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