The Travis Company uses the spreadsheet method for completing the statement of cash flows. The balance sheet accounts and other information related to those accounts are presented below for Travis Company: December 31 Assets 2017 2016 Cash $ 140,000 $ 100,000 Accounts Receivable, net 200,000 240,000 Inventory 160,000 140,000 Long-Term Investments 60,000 150,000 Plant Assets 500,000 450,000 Accumulated Depreciation (300,000) (290,000) Patents 8,000 10,000 Total Assets $ 768,000 $ 800,000 Equities Accounts Payable $ 100,000 $ 80,000 Bonds Payable, due 2017 180,000 240,000 Common Stock, $10 par 200,000 160,000 Additional Paid-in Capital 160,000 140,000 Retained Earnings 128,000 180,000 Total Equities $ 768,000 $ 800,000 Additional information related to 2017 activities: 1. Net loss for 2017 was $40,000. 2. Cash dividends of $12,000 were declared and paid in 2017. 3. 4,000 shares of common stock were issued to bondholders converting bonds payable into common stock. 4. A long-term investment was sold for $100,000 cash. 5. Equipment costing $100,000 and having accumulated depreciation of $30,000 was sold for $50,000 cash. Refer to Exhibit 21-3. Net cash provided (used) in the operating activities section of Travis's 2017 statement of cash flows was $50,000 $56,000 $52,000 $(40,000)
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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The Travis Company uses the spreadsheet method for completing the statement of cash flows. The balance sheet accounts and other information related to those accounts are presented below for Travis Company:
December 31 Assets 2017 2016 Cash $ 140,000 $ 100,000 Accounts Receivable, net 200,000 240,000 Inventory 160,000 140,000 Long-Term Investments 60,000 150,000 Plant Assets 500,000 450,000 Accumulated Depreciation (300,000) (290,000) Patents 8,000 10,000 Total Assets $ 768,000 $ 800,000 Equities Accounts Payable $ 100,000 $ 80,000 Bonds Payable, due 2017 180,000 240,000 Common Stock, $10 par 200,000 160,000 Additional Paid-in Capital 160,000 140,000 Retained Earnings 128,000 180,000 Total Equities $ 768,000 $ 800,000
Additional information related to 2017 activities:
1. Net loss for 2017 was $40,000. 2. Cash dividends of $12,000 were declared and paid in 2017. 3. 4,000 shares of common stock were issued to bondholders converting bonds payable into common stock. 4. A long-term investment was sold for $100,000 cash. 5. Equipment costing $100,000 and having accumulated depreciation of $30,000 was sold for $50,000 cash.
Refer to Exhibit 21-3. Net cash provided (used) in the operating activities section of Travis's 2017 statement of cash flows was$50,000$56,000$52,000$(40,000)
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