The management team of Wickersham Brothers Incorporated is preparing its annual financial statements. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statements are summarized. Current Year Balance Sheet Assets Cash Accounts Receivable Inventory Property and Equipment Less: Accumulated Depreciation Total Assets Liabilities: Accounts Payable Salaries and Wages Payable Notes Payable, Long-Term Stockholders' Equity: Common Stock Retained Earnings Total Liabilities and Stockholders' Equity Income Statement Sales Cost of Goods Sold Depreciation Expense Other Expense Net income $ 95,700 124,000 93,000 176,000 (50,640) $ 438,060 Other information from the company's records includes the following: Bought equipment for cash, $83,000. Paid $15,500 on long-term note payable. Issued new shares of common stock for $20,000 cash. Cash dividends of $26,400 were declared and paid to stockholders. Operating Net Income Depreciation Expense Inventory Salaries and Wages Payable Net cash flow provided by operating activities Investing Financing Debit Beginning balance Ending balance $ 15,500 3,100 77,500 $ 420,000 220,000 24,640 105,000 $ 70,360 • Accounts Payable arose from inventory purchases on credit. • Income Tax Expense ($4,000) and Interest Expense ($3,000) were paid in full at the end of both years and are included in Other Expenses. Prior Year 124,000 144,000 197,960 154,000 $ 438,060 $ 391,150 Required: Prepare a schedule summarizing operating, investing, and financing cash flows using the T-account approach. Required: Prepare a schedule summarizing operating, investing, and financing cash flows using the T-account approach. Cash $ 114,900 108,500 100,750 93,000 (26,000) $ 391,150 $ 18,600 1,550 93,000 0 Credit
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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