Accounting for Accruals
Illustration 2-14: Statement of changes in equity for Candely Services for 20X6
Candely Services |
|
|
|
Contributed Capital |
$ 3,500 |
|
|
Beginning Retained Earnings |
1,300 |
Plus: Net Income |
1,340 |
Less: Distribution |
(500) |
Ending Retained Earnings |
2,140 |
|
|
Total Equity |
$ 5,640 |
While looking at the statement of changes in equity, note that there have been cash distributions to the owner ($500) in this accounting period.
Illustration 2-15: Balance sheet for Candely Services at 20X7 end
Candely Services Balance Sheet For the Period Ended 20X7 |
|
Assets |
|
Cash |
$ 4,800 |
Accounts Receivable |
500 |
Interest Receivable |
40 |
Certification of Deposit |
1,000 |
Total Assets |
6,340 |
|
|
Liabilities |
|
Salaries Payable |
700 |
Total Liabilities |
700 |
|
|
Equity |
|
Contributed Capital |
3,500 |
Retained Earnings |
2,140 |
Total Equity |
5,640 |
|
|
Total Liability and Equity (Claims) |
6,340 |
Two new elements appear in the balance sheet. Interest receivable is the amount due from the borrower of funds (i.e., from the bank) for using Mr. Candely's money. Certificate of deposit represents the initial amount loaned to the bank that will be returned on the maturity date (May 1, 20X8).
Illustration 2-16: Statement of cash flows for Candely Services for 20X7
Candely
Services |
|
Cash Flows from Operating Activities |
|
Cash Receipts from Revenue |
$ 3,000 |
Cash Payments for Expenses |
(1,200) |
Net Cash Flow from Operating Activities |
1,800 |
|
|
Cash Flows from Investing Activities |
|
Cash Payment to Purchase CD |
(1,000) |
Net Cash Flow from Financing Activities |
(1,000) |
|
|
Cash Flows from Financing Activities |
|
Cash Payments for Distributions |
(500) |
Net Cash Flow from Financing Activities |
(500) |
|
|
Net Increase in Cash |
300 |
Plus: Beginning Cash Balance |
4,500 |
|
|
Ending Cash Balance |
$ 4,800 |
In the statement of cash flows, two new elements are introduced. The first is the cash outflow that occurred as a result of purchasing the certificate of deposit. This is a cash flow for investing activities. The second represents the cash outflow for distributions to the owner, which is an example of financing activities.
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