Money, Banking, and International FinanceTable 4. A Balance Sheet for Stores U.S.A.Current assets:
Cash
Accounts receivables
Merchandise inventory
Prepaid expenses
$8,000
10,000
20,000
1,000
Total current assets $39,000
Plant and equipment:
Store equipment
Less accumulated depreciation
Office equipment
Less accumulated depreciation
$25,000
5,500
4,000
1,500
Total plant and equipment 22,000
Total Assets $61,000
Current liabilities:
Accounts payable
Income taxes payable
$3,500
1,000
Total liabilities $4,500
Stockholders’ Equity
Common stock, $5 par value, 10,000 shares authorized and outstanding
Retained earnings
Total stockholders’ equity
$50,000
6,500
56,500
Total liabilities and stockholders’ equity $61,000
The Statement of Changes in the Owner’s Equity is the third financial statement and shows
the changes in the owner’s equity. For all business organizations, profits or net income always
increases equity because the organization has more resources flowing into it. However,
proprietors and partners could invest and/or withdraw from the business. Thus, investment
increases the equity, while withdrawals reduce it. For corporations, the Statement of Changes in
the Owner’s Equity is called the Statement of Retained Earnings. We show an example in Table
5 for XYZ Corporation. Profits or net income increases retained earnings, while dividends
declared decreases it. Dividends are similar to a proprietor’s or partners’ withdrawals. If the
corporation issues more stock, then the corporation increases investment and records this
transaction under the Stockholders’ Equity.
Statement of Cash Flows is the last financial statement and shows the money inflows and
outflows of a business. This statement is important because a business needs adequate cash to
operate such as paying workers, taxes, rent, and interest payments. A corporation could have a
strong balance sheet, excellent income growth, but it fails from poor cash flows. Table 6 lists the