Use the information provided below to prepare the Cash Flow Statement of Harmony Limited for the year ended 31 December 2020. INFORMATION The information provided below was extracted from the accounting records of Harmony Limited on 31 December 2020: Harmony Limited Extract of Statement of Comprehensive Income for the year ended 31 December 2020 R Sales 6 600 000 Cost of sales (3 900 000) Gross profit 2 700 000 Operating expenses (1 710 000) Selling and administrative expenses 1 260 000 Depreciation 450 000 Operating profit 990 000 Interest expense (270 000) Profit before tax 720 000 Company tax (240 000) Profit after tax 480 000 Extract of Statement of Changes in Equity for the year ended 31 December 2020 Retained earnings R Balance on 01 January 2020 1 500 000 Profit after tax 480 000 Dividends paid and proposed in 2020 (180 000) Balance on 31 December 2020 1 800 000 Balances extracted from the Statement of Financial Position as at 31 December: 2020 2019 R R Plant and equipment 3 750 000 3 000 000 Investments 210 000 240 000 Inventories 1 290 000 1 230 000 Accounts receivable 1 140 000 1 050 000 Cash and cash equivalents 300 000 210 000 Ordinary share capital 1 860 000 1 860 000 Retained earnings 1 800 000 1 500 000 Long-term loan 360 000 210 000 Accounts payable 2 520 000 1 962 000 Dividends payable 120 000 150 000 Income tax payable 30 000 48 000 Note: (a) Plant and equipment was purchased but there was no disposal. (b) The number of ordinary shares in issue was 930 000. (c) All purchases and sales of inventory were on credit. (d) Credit terms to debtors are 30 days. Debtors took approximately 28 days to settle their accounts during 2019.
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 information provided below to prepare the
Limited for the year ended 31 December 2020.
INFORMATION
The information provided below was extracted from the accounting records of Harmony Limited on 31 December 2020:
Harmony Limited
Extract of Statement of Comprehensive Income for the year ended 31 December 2020
R
Sales 6 600 000
Cost of sales (3 900 000)
Gross profit 2 700 000
Operating expenses (1 710 000)
Selling and administrative expenses 1 260 000
Depreciation 450 000
Operating profit 990 000
Interest expense (270 000)
Profit before tax 720 000
Company tax (240 000)
Profit after tax 480 000
Extract of Statement of Changes in Equity for the year ended 31 December 2020
earnings
R
Balance on 01 January 2020 1 500 000
Profit after tax 480 000
Dividends paid and proposed in 2020 (180 000)
Balance on 31 December 2020 1 800 000
Balances extracted from the
2020 2019
R R
Plant and equipment 3 750 000 3 000 000
Investments 210 000 240 000
Inventories 1 290 000 1 230 000
Cash and cash equivalents 300 000 210 000
Ordinary share capital 1 860 000 1 860 000
Retained earnings 1 800 000 1 500 000
Long-term loan 360 000 210 000
Accounts payable 2 520 000 1 962 000
Dividends payable 120 000 150 000
Income tax payable 30 000 48 000
Note:
(a) Plant and equipment was purchased but there was no disposal.
(b) The number of ordinary shares in issue was 930 000.
(c) All purchases and sales of inventory were on credit.
(d) Credit terms to debtors are 30 days. Debtors took approximately 28 days to settle their accounts during 2019.
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