Zambrano Wholesale Corporation maintains its records on a cash basis. At the end of each year the company’s accountant obtains the necessary information to prepare accrual basis financial statements. The following cash flows occurred during the year ended December 31, 2021: Cash receipts: From customers $ 670,000 Interest on note 3,920 Loan from a local bank 105,000 Total cash receipts $ 778,920 Cash disbursements: Purchase of merchandise $ 389,000 Annual insurance payment 5,880 Payment of salaries 209,000 Dividends paid to shareholders 12,000 Annual rent payment 23,500 Total cash disbursements $ 639,380 Selected balance sheet information: 12/31/2020 12/31/2021 Cash $ 24,500 $ 164,040 Accounts receivable 61,500 91,000 Inventory 79,000 61,500 Prepaid insurance 2,400 ? Prepaid rent 10,900 ? Interest receivable 2,940 ? Note receivable 49,000 49,000 Equipment 95,000 95,000 Accumulated depreciation (39,500 ) (49,000 ) Accounts payable (for merchandise) 109,500 121,000 Salaries payable 19,900 23,900 Notes payable 0 105,000 Interest payable 0 ? Additional information: On March 31, 2020, Zambrano lent a customer $49,000. Interest at 8% is payable annually on each March 31. Principal is due in 2024. The annual insurance payment is paid in advance on April 30. The policy period begins on May 1. On October 31, 2021, Zambrano borrowed $105,000 from a local bank and signed a note promising repayment. Principal and interest at 6% are due on October 31, 2022. Annual rent on the company’s facilities is paid in advance on June 30. The rental period begins on July 1. Required: 1. Prepare an accrual basis income statement for 2021 (ignore income taxes). 2. Determine the following balance sheet amounts on December 31, 2021:
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.
12.
Zambrano Wholesale Corporation maintains its records on a cash basis. At the end of each year the company’s accountant obtains the necessary information to prepare accrual basis financial statements. The following cash flows occurred during the year ended December 31, 2021:
| Cash receipts: | ||
| From customers | $ | 670,000 |
| Interest on note | 3,920 | |
| Loan from a local bank | 105,000 | |
| Total cash receipts | $ | 778,920 |
| Cash disbursements: | ||
| Purchase of merchandise | $ | 389,000 |
| Annual insurance payment | 5,880 | |
| Payment of salaries | 209,000 | |
| Dividends paid to shareholders | 12,000 | |
| Annual rent payment | 23,500 | |
| Total cash disbursements | $ | 639,380 |
Selected balance sheet information:
| 12/31/2020 | 12/31/2021 | |||||
| Cash | $ | 24,500 | $ | 164,040 | ||
| Accounts receivable | 61,500 | 91,000 | ||||
| Inventory | 79,000 | 61,500 | ||||
| Prepaid insurance | 2,400 | ? | ||||
| Prepaid rent | 10,900 | ? | ||||
| Interest receivable | 2,940 | ? | ||||
| Note receivable | 49,000 | 49,000 | ||||
| Equipment | 95,000 | 95,000 | ||||
| (39,500 | ) | (49,000 | ) | |||
| Accounts payable (for merchandise) | 109,500 | 121,000 | ||||
| Salaries payable | 19,900 | 23,900 | ||||
| Notes payable | 0 | 105,000 |
||||
| Interest payable | 0 | ? | ||||
Additional information:
- On March 31, 2020, Zambrano lent a customer $49,000. Interest at 8% is payable annually on each March 31. Principal is due in 2024.
- The annual insurance payment is paid in advance on April 30. The policy period begins on May 1.
- On October 31, 2021, Zambrano borrowed $105,000 from a local bank and signed a note promising repayment. Principal and interest at 6% are due on October 31, 2022.
- Annual rent on the company’s facilities is paid in advance on June 30. The rental period begins on July 1.
Required:
1. Prepare an accrual basis income statement for 2021 (ignore income taxes).
2. Determine the following balance sheet amounts on December 31, 2021:
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