he following income statement and additional year-end information is provided. SONAD COMPANY Income Statement For Year Ended December 31 Sales $ 2,323,000 Cost of goods sold 1,138,270 Gross profit 1,184,730 Operating expenses Salaries expense $ 318,251 Depreciation expense 55,752 Rent expense 62,721 Amortization expenses—Patents 6,969 Utilities expense 25,553 469,246 715,484 Gain on sale of equipment 9,292 Net income $ 724,776 Accounts receivable $ 31,400 increase Accounts payable $ 12,675 decrease Inventory 26,100 increase Salaries payable 2,500 decrease Prepare the operating activities section of the statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.) Statement of Cash Flows (partial) Cash flows from operating activities Adjustments to reconcile net income to net cash provided by operating activities Income statement items not affecting cash Changes in current operating assets and liabilities
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 following income statement and additional year-end information is provided.
| SONAD COMPANY | ||
| Income Statement | ||
| For Year Ended December 31 | ||
| Sales | $ 2,323,000 | |
|---|---|---|
| Cost of goods sold | 1,138,270 | |
| Gross profit | 1,184,730 | |
| Operating expenses | ||
| Salaries expense | $ 318,251 | |
| Depreciation expense | 55,752 | |
| Rent expense | 62,721 | |
| Amortization expenses—Patents | 6,969 | |
| Utilities expense | 25,553 | 469,246 |
| 715,484 | ||
| Gain on sale of equipment | 9,292 | |
| Net income | $ 724,776 |
| Accounts receivable | $ 31,400 increase | Accounts payable | $ 12,675 decrease |
| Inventory | 26,100 increase | Salaries payable | 2,500 decrease |
Prepare the operating activities section of the statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)
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