The 2024 income statement of Adrian Express reports sales of $16,605,000, cost of goods sold of $10,106, 000, and net income of $1,620,000. Balance sheet information is provided in the following table. ADRIAN EXPRESS Balance Sheets December 31, 2024 and 2023 2024 2023 Assets Current assets: Cash S620,000 $780,000 Accounts receivable 1,440,000 1,020,000 Inventory 1,840,000 1,420,000 Long -term assets 4,820,000 4,260,000 Total assets $8,720,000 $7, 480,000 Liabilities and Stockholders' Equity Current liabilities $2,000,000 $1,680,000 Long-term liabilities 2, 320,000 2,420,000 Common stock 1,980,000 1,980,000 Retained earnings 2, 420,000 1,400,000 Total liabilities and stockholders' equity S8, 720,000 $7, 480,000 Industry averages for the following four risk ratios are as follows: Average collection period 25 days Average days in inventory 60 days Current ratio 2 to 1 Debt to equity ratio 50% Required: 1. Calculate the four risk ratios listed above for Adrian Express in 2024. 2. Do you think the company is more risky or less risky than the industry average?
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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