On March 31, 2019, the balances of the accounts appearing in the ledger of Racine Furnishings Company, a furniture wholesaler, are as follows: Accumulated Depreciation-Building $746,350 Administrative Expenses 515,750 Building 2,419,500 Cash 168,150 Cost of Merchandise Sold 3,900,350 Interest Expense 9,750 Kathy Melman, Capital 1,585,350 Kathy Melman, Drawing 180,400 Merchandise Inventory 941,750 Notes Payable 261,150 Office Supplies 21,000 Salaries Payable 7,850 Sales 6,627,450 Selling Expenses 710,900 Store Supplies 93,650 Required: a. Prepare a multiple-step income statement for the year ended March 31, 2019. Be sure to complete the heading of the statement. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. In the Other expenses section only, enter amounts that represent other expenses as negative numbers using a minus sign. b. What is a major advantage of the multiple-step income statement over the single-step income statement?
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.
| Accumulated Depreciation-Building | $746,350 |
| Administrative Expenses | 515,750 |
| Building | 2,419,500 |
| Cash | 168,150 |
| Cost of Merchandise Sold | 3,900,350 |
| Interest Expense | 9,750 |
| Kathy Melman, Capital | 1,585,350 |
| Kathy Melman, Drawing | 180,400 |
| Merchandise Inventory | 941,750 |
| Notes Payable | 261,150 |
| Office Supplies | 21,000 |
| Salaries Payable | 7,850 |
| Sales | 6,627,450 |
| Selling Expenses | 710,900 |
| Store Supplies | 93,650 |
| Required: | |
| a. | Prepare a multiple-step income statement for the year ended March 31, 2019. Be sure to complete the heading of the statement. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. In the Other expenses section only, enter amounts that represent other expenses as negative numbers using a minus sign. |
| b. | What is a major advantage of the multiple-step income statement over the single-step income statement? |
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