Vonderheid's balance sheet for December 31, Year 6 appears below: Vonderheid Company Balance Sheet December 31, Year 6 Liabilities and Shareholders' Equity Assets Cash Interest Receivable $ 30,000 Accounts Payable 1,000 Notes Payable 8,000 Interest Payable 50,000 Total Current Liabilities $ 89,000 Bonds Payable Total Liabilities $ 15,000 $ 20,000 16,000 Notes Receivable Inventory 800 $ 36,800 Total Current Assets 20.000 $ 56,800 Land Building Total Land and Building 70 000 Common Stock $ 80,000 $85 000 Additional Paid-in Capital 20,000 Retained Earnings Total Shareholders' Equity $174,000 Total Liabilities and Shareholders' Equity 17,200 $117,200 Total Assets $174.000 The following transactions (a-g) occurred during January Year 7. For each transaction, make the appropriate journal entry to record the transaction. Be sure to also show the effect on the balance sheet equation. a. The firm collected the note receivable of $8,000 and the related accrued interest of $1,000 on January 2. Answer b. Paid the note payable for $16,000 and the related accrued interest of $800 on January 2. Answer c. Paid the December 31 balance in Accounts Payable on January 15. Answer d. Issued $80,000 of bonds at face value and used the proceeds to pay for an addition to the building on January 20. Answer e. Acquired merchandise inventory costing $30,000 on January 21 with payment of $16,000 in cash and the remainder due in 30 days on open account. Answer f. Sold the plot of land costing $15,000 for $15,000 on January 25. Answer g. Issued an additional 400 shares of common stock for $125 per share on January 28. The par value of the stock is $100.
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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