he following information has been taken from Sacha's accounts. Income Statement for the year ending 31st December 2019.” “ £ Revenue 1,372,008 Cost of Sales (916,502) Gross Profit 455,506 Selling and distribution expenses (excluding depreciation) (110,000) Administration expenses (excluding depreciation) (86,000) Operating expenses (90,540) Depreciation (84,480) Operating Profit 84,486 Interest receivable 7,428 Interest payable (3,714) Profit for the year 88,200” “Statements of financial position as at 31st December 2018 and 31st December 2019. “ “2018 2019 £ £ £ £ Fixed Assets Buildings at cost 290,000 290,000 Accumulated depreciation (112,000) (141,000) Buildings - Net Book Value 178,000 149,000 Motor Vans - cost 134,000 176,000 Accumulated depreciation (41,640) (97,120) Motor vans - Net book value 92,360 78,880 270,360 227,880 Current Assets Inventory 151,100 157,544 Trade receivables 10,500 14,510 Bank - 5,612 Current liabilities Trade payables (185,480) (164,856) Bank overdraft (14,962) - Net current assets (38,842) 12,810 Non-current liabilities Long-term loan (80,000) (40,000) 151,518 200,690 Capital Capital brought forward 152,000 151,518 Profits for the year 69,800 88,200 Drawings (70,282) (39,028) 151,518 200,690” “Required:” “Prepare a cashflow statement using the indirect method for the year ending 31st December 2019, showing clearly how cash and cash equivalents changed during the year. Please show detailed workings.
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 information has been taken from Sacha's accounts.
Income Statement for the year ending 31st December 2019.”
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“ £ |
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Revenue |
1,372,008 |
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Cost of Sales |
(916,502) |
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Gross Profit |
455,506 |
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|
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|
Selling and distribution expenses (excluding depreciation) |
(110,000) |
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Administration expenses (excluding depreciation) |
(86,000) |
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Operating expenses |
(90,540) |
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Depreciation |
(84,480) |
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Operating Profit |
84,486 |
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Interest receivable |
7,428 |
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Interest payable |
(3,714) |
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Profit for the year |
88,200” |
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“
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“2018 |
2019 |
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£ |
£ |
£ |
£ |
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Fixed Assets |
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Buildings at cost |
290,000 |
290,000 |
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Accumulated depreciation |
(112,000) |
(141,000) |
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Buildings - Net Book Value |
178,000 |
149,000 |
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Motor Vans - cost |
134,000 |
176,000 |
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Accumulated depreciation |
(41,640) |
(97,120) |
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Motor vans - Net book value |
92,360 |
78,880 |
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270,360 |
227,880 |
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Current Assets |
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Inventory |
151,100 |
157,544 |
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Trade receivables |
10,500 |
14,510 |
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Bank |
- |
5,612 |
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Current liabilities |
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Trade payables |
(185,480) |
(164,856) |
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Bank overdraft |
(14,962) |
- |
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Net current assets |
(38,842) |
12,810 |
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Non-current liabilities |
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Long-term loan |
(80,000) |
(40,000) |
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|
151,518 |
200,690 |
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Capital |
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Capital brought forward |
152,000 |
151,518 |
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Profits for the year |
69,800 |
88,200 |
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Drawings |
(70,282) |
(39,028) |
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|
151,518 |
200,690” |
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“Required:”
- “Prepare a cashflow statement using the indirect method for the year ending 31st December 2019, showing clearly how cash and cash equivalents changed during the year. Please show detailed workings.
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