Page 277 - DMGT104_FINANCIAL_ACCOUNTING

Unit 12: Corporate Financial Statements

But in the long-run, of course, a company cannot keep spending more money than it takes in. For Notes
companies in trouble, analysts want to keep an eye on the current amount of cash in the bank (to
be sure the company has enough funds on hand to cover its bills). In fact, if the company’s
auditors think that cash-on-hand may not be sufficient to pay the bills (including anticipated
operating losses) in the next few months, they will issue what is called a “going concern”
warning that is attached to the audited financial statement. They are warning investors, in other
words, that the company’s cash stockpile may not be enough the pay the company’s bills, which
usually forces the company to seek bankruptcy protection (hence eliminating its status as a
“going concern”).

Example: Sample Cash Flow Statement
Sample Business Plan
Sample Cash Flow Statement
Statement for the Month Ended_________.
Cash Flow from Operating Activities
Net Income 1,800
Non-cash Expenses and Revenues
Include income
Increase in Accounts Receivable 1,000
Increase in Supplies 500
Increase in Accounts Payable 600 (900)
Net Cash Flow from Operating Activities 900
Cash Flows from Investing Activities
Purchase of land (10,000)
Purchase of Building (25,000)
Net Cash Flow used by Investing Activities
Cash Flow Financing Activities
Invested 50,000
Withdrawals (600)
Net Cash Flow provided by Financing Activities 49,400
Net Increase (Decrease) in Cash 15,000

12.2.4 Statement of Retained Earnings

The statement of retained earnings describes the changes that occur in the retained earnings of
a company. The statement of retained earnings shows the amount of accumulated earnings that
have been retained within the company since its inception. At the end of each fiscal year-end, the
amount of net income or loss is added to the opening amount of retained earnings to arrive at
the closing retained earnings. Retained earnings can be decreased by such items as dividends
paid to shareholders.

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