At December 31, 2018, certain accounts included in the property, plant, and equipment section of Townsand Company's balance sheet had the following balances: Land $100,000 Buildings
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.
At December 31, 2018, certain accounts included in the property, plant, and equipment section of Townsand Company's balance sheet had the following balances:
| Land | $100,000 | |
| Buildings | 800,000 | |
| Leasehold improvements | 500,000 | |
| Machinery and equipment | 700,000 |
During 2019, the following transactions occurred:
- Land site number 621 was acquired for $1,000,000. Additionally, to acquire the land, Townsand paid a $60,000 commission to a real estate agent. Costs of $15,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $5,000.
- A second tract of land (site number 622) with a building was acquired for $300,000. The closing statement indicated that the land value was $200,000 and the building value was $100,000. Shortly after acquisition, the building was demolished at a cost of $30,000. A new building was constructed for $150,000 plus the following costs:
Excavation fees $11,000 Architectural design fees 8,000 Building permit fee 1,000
The building was completed and occupied on September 29, 2019. - A third tract of land (site number 623) was acquired for $600,000 and was put on the market for resale.
- Extensive work was done to a building occupied by Townsand under a lease agreement that expires on December 31, 2028. The total cost of the work was $125,000, which consisted of the following:
Painting of ceilings $ 10,000 (estimated useful life is 1 year) Electrical work 35,000 (estimated useful life is 10 years) Construction of extension to current working area 80,000 (estimated useful life is 30 years) $125,000
The lessor, Steinbeck Company, paid one-half of the costs incurred in connection with the extension to the current working area. - During December 2019, costs of $65,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2021, and is not expected to be renewed.
- A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was $75,000, freight costs were $2,000, unloading charges were $1,500, and royalty payments for 2019 were $13,000.
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