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UT Arlington ACCT 2301 - Adjusting Accounts and Preparing Financial Statements

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Acct 2301 1st Edition Lecture 6Outline of Last Lecture I. Analyzing and Recording TransactionsOutline of Current Lecture II. Adjusting Accounts and Preparing Financial Statements Current Lecture9.3. Presentation of the balance sheetThe balance sheet is presented as follows:Illustration 11: Balance sheet for Friends CompanyFriends CompanyBalance SheetPeriod Ended 20X6Assets $8,500Total Assets 8,500 Liabilities 2,000Equity Contributed Capital 5,000 Retained Earnings 1,500Total Equity 6,500 Total Liability and Equity (Claims) 8,500The balance sheet lists assets and corresponding claims (liabilities and equity). Any asset has a source, so assets balance with claims. That is why total assets equal the sum of total liabilities and equity.9.4. Presentation of the statement of cash flowsThe statement of cash flows has the following format:These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Illustration 12: Statement of cash flows for Friends CompanyFriends CompanyStatement of Cash FlowsFor thePeriod Ended 20X6Cash Flows from Operating Activities Cash Receipts from Customers $3,000 Cash Payments for Expenses (1,000)Net Cash Flow from Operating Activities 2,000 Cash Flows from Investing Activities 0 Cash Flows from Financing Activities Cash Receipts from Borrowing 2,000 Cash Receipts from Capital Acquisitions 5,000 Cash Payments for Distributions (500)Net Cash Flow from Financing Activities 6,500 Net Increase in Cash 8,500Plus: Beginning Cash Balance 0 Ending Cash Balance $8,500The statement of cash flows explains how the company obtained and used cash during a period. Sources of cash are called cash inflows, and uses of cash are known as cash outflows.Cash inflows are sources of cash; for example, payments from customers, capital acquisitions, etc.Cash outflows are uses of cash; for example, payments to vendors, paying off bank loans, etc.The statement classifies cash inflows and outflows into three categories: Operating activities explain cash generated through revenue and cash spent for expenses. Investing activities include cash received or spent on productive assets and investments in the debt or equity of other companies. Financing activities describe cash transactions associated withresource providers (i.e., owners and lenders.)Illustration 13: Cash flow


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