Vaughn Inc., a greeting card company, had the following statements prepared as of December 31, 2025 Cash Accounts receivable Short-term debt investments (available-for-sale) Inventory Prepaid rent Equipment Accumulated depreciation-equipment Copyrights Total assets Accounts payable Income taxes payable Salaries and wages payable Short-term loans payable Long-term loans payable Common stock, $10 par Paid-in capital, common stock Retained earnings Total liabilities and stockholders' equity Sales revenue Cost of goods sold Gross profit Vaughn Inc. Comparative Balance Sheet As of December 31, 2025 and 2024 Operating expenses Operating income Interest expense Gain on sale of equipment Income before tax Income tax expense Net income 1. Vaughn Inc. Income Statement For the Year Ending December 31, 2025 Additional information: 2. 3. 4. $11,400 2,100 12/31/25 $5,900 62,000 34,700 39,700 4,900 154,300 (35,300) 45,600 $311,800 $46,200 4,000 8,100 8,000 60,200 100,000 30,000 55,300 $335,600 174,600 161,000 120,700 40,300 9,300 31.000 6,200 12/31/24 $311,800 $295,900 $24,800 $7,000 51,500 17,900 60,400 4,100 130,500 (25,200) 49,700 $295,900 $40,400 6,000 3,900 9,900 69,300 100,000 30,000 36,400 Dividends in the amount of $5,900 were declared and paid during 2025. Depreciation expense and amortization expense are included in operating expenses. No unrealized gains or losses have occurred on the investments during the year. Equipment that had a cost of $19,800 and was 70% depreciated was sold during 2025
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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