BALANCE SHEET Liabilities Amt Assets Amt Accounts payable 5,000 Machine and equipment 15,000 Long term debt 8,700 Cash on hand 1,500 Current portion of long term debts 1,700 Merchandise inventory 12,400 Accrued interest payable 1,400 Buildings and improvements 20,000 Mortgage payable 14,500 Accounts receivables 6,200 Capital 74,500 Land 50,000 Prepaid expenses 700 105,800 105,800 Compute for and interpret the following: a. Current ratio b. Working capital c. Acid-test ratio d. Net capital ratio e. Networth ratio f. Debt/Asset ratio g. Debt/Equity ratio 3. What can you say about the short-run and long-run financial conditions of Farm A? 4. What do you think is the main limitation of the given information? Can you effectively analyze both the short-run and long-run positions of Farm A? Why or why not?
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.
| Liabilities | Amt | Assets | Amt |
| Accounts payable | 5,000 | Machine and equipment | 15,000 |
| Long term debt | 8,700 | Cash on hand | 1,500 |
| Current portion of long term debts | 1,700 | Merchandise inventory | 12,400 |
| Accrued interest payable | 1,400 | Buildings and improvements | 20,000 |
| Mortgage payable | 14,500 | 6,200 | |
| Capital | 74,500 | Land | 50,000 |
| Prepaid expenses | 700 | ||
| 105,800 | 105,800 | ||
Compute for and interpret the following:
a.
b.
c. Acid-test ratio
d. Net capital ratio
e. Networth ratio
f. Debt/Asset ratio
g. Debt/Equity ratio
3. What can you say about the short-run and long-run financial conditions of Farm A?
4. What do you think is the main limitation of the given information? Can you effectively analyze both the short-run and long-run positions of Farm A? Why or why not?
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