The accounting records of Tama Co. show the following assets and liabilities as of December 31, 2018 and 2019. December 31 2018 2019 Cash . . . . . . . . . . . . . . . . . . . . . . . . $30,000 $ 5,000 Accounts receivable . . . . . . . . . . . 35,000 25,000 Office supplies . . . . . . . . . . . . . . . . 8,000 13,500 Office equipment . . . . . . . . . . . . . . 40,000 40,000 Machinery . . . . . . . . . . . . . . . . . . . 28,000 28,500 December 31 2018 2019 Building . . . . . . . . . . . . . . . . . . $ 0 $250,000 Land . . . . . . . . . . . . . . . . . . . . . 0 50,000 Accounts payable . . . . . . . . . . 4,000 12,000 Note payable . . . . . . . . . . . . . . 0 250,000 Required 1. Prepare balance sheets for the business as of December 31, 2018 and 2019. Hint: Report only total equity on the balance sheet and remember that total equity equals the difference between assets and liabilities. 2. Compute net income for 2019 by comparing total equity amounts for these two years and using the following information: During 2019, the owner invested $5,000 additional cash in the business and withdrew $3,000 cash for personal use. 3. Compute the December 31, 2019, debt ratio (in percent and rounded to one decimal).
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 accounting records of Tama Co. show the following assets and liabilities as of December 31, 2018
and 2019.
December 31 2018 2019
Cash . . . . . . . . . . . . . . . . . . . . . . . . $30,000 $ 5,000
Accounts receivable . . . . . . . . . . . 35,000 25,000
Office supplies . . . . . . . . . . . . . . . . 8,000 13,500
Office equipment . . . . . . . . . . . . . . 40,000 40,000
Machinery . . . . . . . . . . . . . . . . . . . 28,000 28,500
December 31 2018 2019
Building . . . . . . . . . . . . . . . . . . $ 0 $250,000
Land . . . . . . . . . . . . . . . . . . . . . 0 50,000
Accounts payable . . . . . . . . . . 4,000 12,000
Note payable . . . . . . . . . . . . . . 0 250,000
Required
1. Prepare balance sheets for the business as of December 31, 2018 and 2019. Hint: Report only total equity
on the
2. Compute net income for 2019 by comparing total equity amounts for these two years and using the
following information: During 2019, the owner invested $5,000 additional cash in the business and
withdrew $3,000 cash for personal use.
3. Compute the December 31, 2019, debt ratio (in percent and rounded to one decimal).
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