Bernie's Ltd. Income Statement For the Year ended December 31, 20X5 Income: Sales 682,000 Dividends 22,000 Interest 29,000 Gain on sale of PPE (Property Plant & Equipment) 19,000 Total income 752,000 Expenses: Cost of goods sold 360,000 Depreciation 43,000 Wages 134,000 Interest 38,000 Other expenses 41,000 Total expenses 616,000 Net income before income tax expense 136,000 Income tax expense 36,000 Net income after income tax expense 100,000 Additional information: PPE purchases during 20X5 were $735,000 Issuance of mortgage payable during 20X5 $226,000 The company follows ASPE. All prepaid expenses at the beginning of the year expired during 20X5. $5,000 was accrued for operating expenses at year end. Bernie's Ltd. Balance sheet As at December 31, 20X5 20X4 Assets Cash 57,000 101,000 Accounts receivable 224,000 192,000 Inventory 323,000 330,000 Interest receivable 8,000 3,000 Prepaids 18,000 17,000 Long term receivable from Dennis's Ltd. 26,000 - Property, Plant and Equipment (PPE), net 1,087,000 525,000 Total 1,743,000 1,168,000 Liabilities Accounts payable 220,000 137,000 Accrued liabilities 5,000 7,000 Wages payable 6,000 12,000 Mortgage payable 384,000 185,000 Shareholder's Equity Common shares 861,000 619,000 Retained earnings 267,000 208,000 Total 1,743,000 1,168,000 How much is the net adjustment to net income under the operating activities section for inventory as it appears on the cash flow statement when 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.
| Bernie's Ltd. | |
| Income Statement | |
| For the Year ended December 31, 20X5 | |
| Income: | |
| Sales | 682,000 |
| Dividends | 22,000 |
| Interest | 29,000 |
| Gain on sale of PPE (Property Plant & Equipment) | 19,000 |
| Total income | 752,000 |
| Expenses: | |
| Cost of goods sold | 360,000 |
| Depreciation | 43,000 |
| Wages | 134,000 |
| Interest | 38,000 |
| Other expenses | 41,000 |
| Total expenses | 616,000 |
| Net income before income tax expense | 136,000 |
| Income tax expense | 36,000 |
| Net income after income tax expense | 100,000 |
Additional information:
PPE purchases during 20X5 were $735,000
Issuance of mortgage payable during 20X5 $226,000
The company follows ASPE.
All prepaid expenses at the beginning of the year expired during 20X5.
$5,000 was accrued for operating expenses at year end.
| Bernie's Ltd. | ||
| Balance sheet | ||
| As at December 31, | 20X5 | 20X4 |
| Assets | ||
| Cash | 57,000 | 101,000 |
| Accounts receivable | 224,000 | 192,000 |
| Inventory | 323,000 | 330,000 |
| Interest receivable | 8,000 | 3,000 |
| Prepaids | 18,000 | 17,000 |
| Long term receivable from Dennis's Ltd. | 26,000 | - |
| Property, Plant and Equipment (PPE), net | 1,087,000 | 525,000 |
| Total | 1,743,000 | 1,168,000 |
| Liabilities | ||
| Accounts payable | 220,000 | 137,000 |
| Accrued liabilities | 5,000 | 7,000 |
| Wages payable | 6,000 | 12,000 |
| Mortgage payable | 384,000 | 185,000 |
| Shareholder's Equity | ||
| Common shares | 861,000 | 619,000 |
| Retained earnings | 267,000 | 208,000 |
| Total | 1,743,000 | 1,168,000 |
How much is the net adjustment to net income under the operating activities section for inventory as it appears on the cash flow statement when using the indirect method?
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