Use the following data to construct a statement of cash flows using the direct method. Balances 20X19 20X18 Statement of Financial Position Cash Accounts receivables Prepaid insurance Inventory Fixed asset Accumulated depreciation Total assets Accounts payable Wages payable Note payable Capital Retained earnings Total liability and equity Statement of P/L and other comprehensive income Sales Cost of sales Depreciation expense Insurance expense Wage expense Net income 4,000 25,000 5,000 37,000 316,000 (45,000) 342,000 18,000 4,000 173,000 88,000 59,000 342,000 200,000 (123,000) (15,000) (11,000) (50,000) 1,000 14,000 32,500 7,000 34,000 270,000 (30,000) 327,500 16,000 7,000 160,000 84,000 60,500 327,500 Additional information Dividends declared and paid in 20X19 for R2,500 R46,000 was paid for new fixed assets in 20X19 Accounts payable was used only for inventory No debt was retired during 20X19
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.
Use the following data to construct a statement of cash flows using the direct method.
|
Balances |
20X19 |
20X18 |
|
Cash Accounts receivables Prepaid insurance Inventory Fixed asset Accumulated Total assets
Accounts payable Wages payable Note payable Capital Total liability and equity
Statement of P/L and other comprehensive income Sales Cost of sales Depreciation expense Insurance expense Wage expense Net income |
4,000 25,000 5,000 37,000 316,000 (45,000) 342,000
18,000 4,000 173,000 88,000 59,000 342,000
200,000 (123,000) (15,000) (11,000) (50,000) 1,000 |
14,000 32,500 7,000 34,000 270,000 (30,000) 327,500
16,000 7,000 160,000 84,000 60,500 327,500
|
Additional information
- Dividends declared and paid in 20X19 for R2,500
- R46,000 was paid for new fixed assets in 20X19
- Accounts payable was used only for inventory
- No debt was retired during 20X19
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