The comparative balance sheets and income statement for Bingky Barnes Inc. are as follows: Current Year Prior Year Balance sheet at December 31 Cash $ 38,500 $ 30,900 Accounts receivable 34,700 30,200 Merchandise inventory 45,000 39,100 Property and equipment 123,700 101,500 Less: Accumulated depreciation (32,400 ) (26,200 ) $ 209,500 $ 175,500 Accounts payable $ 38,600 $ 29,800 Accrued wages expense 2,400 2,900 Note payable, long-term 46,000 49,300 Common stock and additional paid-in capital 91,700 73,900 Retained earnings 30,800 19,600 $ 209,500 $ 175,500 Income statement for current year Sales $ 130,000 Cost of goods sold 80,000 Other expenses 38,800 Net income $ 11,200 Additional Data: Equipment bought for cash, $22,200. Long-term notes payable was paid off for $3,300. Issued new shares of stock for $17,800 cash. No dividends were declared or paid. Other expenses included depreciation, $6,200; wages, $20,200; taxes, $6,800; other, $5,600. Assume that expenses were fully paid in cash, when there are no liabilities account related to them. For example, tax expenses are paid in cash since there is no taxes payable. Required: 1. Prepare the statement of cash flows for the year ended December 31, current year, using the indirect method.
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.
The comparative balance sheets and income statement for Bingky Barnes Inc. are as follows:
| Current Year | Prior Year | ||||||
| Balance sheet at December 31 | |||||||
| Cash | $ | 38,500 | $ | 30,900 | |||
| Accounts receivable | 34,700 | 30,200 | |||||
| Merchandise inventory | 45,000 | 39,100 | |||||
| Property and equipment | 123,700 | 101,500 | |||||
| Less: |
(32,400 | ) | (26,200 | ) | |||
| $ | 209,500 | $ | 175,500 | ||||
| Accounts payable | $ | 38,600 | $ | 29,800 | |||
| Accrued wages expense | 2,400 | 2,900 | |||||
| Note payable, long-term | 46,000 | 49,300 | |||||
| Common stock and additional paid-in capital | 91,700 | 73,900 | |||||
| Retained earnings | 30,800 | 19,600 | |||||
| $ | 209,500 | $ | 175,500 | ||||
| Income statement for current year | |||||||
| Sales | $ | 130,000 | |||||
| Cost of goods sold | 80,000 | ||||||
| Other expenses | 38,800 | ||||||
| Net income | $ | 11,200 | |||||
Additional Data:
- Equipment bought for cash, $22,200.
- Long-term notes payable was paid off for $3,300.
- Issued new shares of stock for $17,800 cash.
- No dividends were declared or paid.
- Other expenses included depreciation, $6,200; wages, $20,200; taxes, $6,800; other, $5,600.
- Assume that expenses were fully paid in cash, when there are no liabilities account related to them. For example, tax expenses are paid in cash since there is no taxes payable.
Required:
1. Prepare the statement of cash flows for the year ended December 31, current year, using the indirect method.
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