Skinner Corp. required additional cash for its operation and used its accounts receivable to raise such needed cash, as follows: On December 1, 2022, Skinner assigned on a non-notification basis accounts receivable of P4,000,000 to a bank in consideration for a loan of 90% of the receivables less a 0.5% service fee on the accounts assigned. Skinner signed a note for the bank loan. On December 31, 2022, Skinner collected assigned accounts of P2,400,000 less discount of P160,000. Skinner remitted the collections to the bank in partial payment for the loan. The bank applied first the collection to the interest and the balance to the principal. The agreed interest is 1.25% per month on the loan balance. Skinner sold P1,750,000 of accounts receivable for P1,350,000. The receivables had a carrying amount of P1,600,000 and were sold outright on a non-recourse basis. Skinner received an advance of P400,000 from Waterston Bank by pledging P350,000 of accounts receivable. On December 31, 2022, Skinner discounted at a bank a customer's P1,200,000, 10-month, 10% note receivable dated April 30, 2022. The bank discounted the note at 15% on the same date. 1. In its December 31, 2022, statement of financial position, how much should Skinner report as note payable in its current liabilities section? 2. How much is Skinner's equity in the assigned accounts receivable as of December 31, 2022? 3. How much were the proceeds from the note receivable discounted on December 30? 4. How much was debited to the Allowance for Doubtful Accounts during the sale of the receivables?
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.
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