urrent Year Previous Year Balance Sheet at December 31 Cash $ 62,600 $ 67,200 Accounts Receivable 15,400 20,500 Inventory 22,600 20,500 Equipment 225,000 151,000 Accumulated Depreciation—Equipment (61,500) (46,000) Total Assets $ 264,100 $ 213,200 Accounts Payable $ 8,100 $ 19,200 Salaries and Wages Payable 2,100 1,000 Notes Payable (long-term) 60,500 76,000 Common Stock 102,000 71,000 Retained Earnings 91,400 46,000 Total Liabilities and Stockholders’ Equity $ 264,100 $ 213,200 Income Statement Sales Revenue $ 203,000 Cost of Goods Sold 91,000 Other Expenses 61,500 Net Income $ 50,500
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.
PB12-3 (Algo) Preparing a Statement of Cash Flows (Indirect Method) [LO 12-2, LO 12-3, LO 12-4, LO 12-5]
Audio City, Incorporated, is developing its annual financial statements at December 31. The statements are complete except for the statement of cash flows. The completed comparative balance sheets and income statement are summarized below:
| Current Year | Previous Year | |
|---|---|---|
| Cash | $ 62,600 | $ 67,200 |
| 15,400 | 20,500 | |
| Inventory | 22,600 | 20,500 |
| Equipment | 225,000 | 151,000 |
| (61,500) | (46,000) | |
| Total Assets | $ 264,100 | $ 213,200 |
| Accounts Payable | $ 8,100 | $ 19,200 |
| Salaries and Wages Payable | 2,100 | 1,000 |
| Notes Payable (long-term) | 60,500 | 76,000 |
| Common Stock | 102,000 | 71,000 |
| 91,400 | 46,000 | |
| Total Liabilities and |
$ 264,100 | $ 213,200 |
| Income Statement | ||
| Sales Revenue | $ 203,000 | |
| Cost of Goods Sold | 91,000 | |
| Other Expenses | 61,500 | |
| Net Income | $ 50,500 |
Additional Data:
- Bought equipment for cash, $74,000.
- Paid $15,500 on the long-term notes payable.
- Issued new shares of stock for $31,000 cash.
- Dividends of $5,100 were paid in cash.
- Other expenses included depreciation, $15,500; salaries and wages, $20,500; taxes, $25,500.
- Accounts Payable includes only inventory purchases made on credit. Because a liability relating to taxes does not exist, assume that they were fully paid in cash.
Required:
1. Prepare the statement of cash flows for the current year ended December 31 using the indirect method. (Amounts to be deducted should be indicated by a minus sign.)
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