You have been asked to prepare the statement of cash flows for Neo Ltd for the year ended 30 November 2021. The most recent income statement and statement of financial position (with comparatives for the previous year) of Neo Ltd are set out below. Neo Ltd – Income Statement for the year ended 30 November 2021 Revenue 104,567 Cost of sales (71,358) Gross profit 33,209 Profit on disposal of property, plant and equipment 106 33,315 Distribution costs (12,789) Administrative expenses (16,371) Profit from operations 4,155 Finance costs (608) Profit before tax 3,547 Тах (726) Profit for the period 2,821 Neo Ltd – Statements of financial position as at 30 November 2020 2021 £000 £000 ASSETS Non-current assets Property, plant and equipment 42,306 30,832 Current assets Inventories 11,378 7,256 Trade and other receivables Cash and cash 9,736 4,175 equivalents 905 21,114 63,420 12,336 43,168 Total assets EQUITY AND LIABILITIES Equity Ordinary share capital Share premium Retained earnings Total equity 9,400 7,100 13,400 16,700 9,378 35,478 7,857 28,357 Non-current liabilities 15,200 12,000 12,000 Bank loans 15,200 Current liabilities Trade payables 7,106 1,900 Tax liabilities 726 911 Bank overdraft 4,910 12,742 2,811 Total liabilities 27,942 14,811 Total equity and liabilities 63,420 43,168 Further information: The total depreciation charge for the year was £3,786,000. Property, plant and equipment with a carrying amount of £706,000 was sold in the year. All sales and purchases were on credit. Cther expenses were paid for in cash. A dividend of £1,300,000 was paid during the year.
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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