Essay On Availment Of Loan (Borrowings)

Items affecting the financial statements

Neither the shareholders nor the market analyst has access to as what is going on in any company. It is only through the financial statements, namely, Balance Sheet, Income Statement and Cash Flow Statement, third parties come to know about the financial standing of the company. It is noteworthy to comment that each financial statement has its own importance and there are many components within each of them that assist the users of the financial statements. Below discussed are such components that impact the financial statements:

Investment from the owner

Also known as Capital Amount, any investment by the owner of the company increases the cash balance on the balance sheet while the similar amount is added to the capital account which is the part of the equity section in the balance sheet.

Included in the balance sheet, all the borrowings raised by the company are added to the cash balance on the asset side while the similar amount is added to the liability side as non-current liabilities. It is important to note that the total amount of borrowings by the company is also included in the cash flow statement as inflow from financing activities

Acquisition and sales of property and equipment

Any transaction relating to the property and equipment which are the non-current assets of the company are included in the balance sheet and cash flow statement of the company. For instance, if the company has acquired any such asset, the amount spent is deducted from the cash balance(assuming the company paid cash for purchasing plant and equipment) and the asset of similar amount is added to the non-current asset base. Similarly, if the company has sold the property and equipment(assuming for cash), the amount is added to the cash balance and asset sold is removed from the non-current asset base.
As for the effect on cash flow statement, at the time of sale of property and equipment, the amount received is included as inflow from investing activities. On the other side, at the time of purchase of plant and equipment, the amount spent is included as outflow from investing activities in the cash flow statement.

Cash sales and sales on account

In reference to the sales made by the company, no matter if the sale is cash or credit, adhering with the accrual basis principal of accounting, every company has to record the total sales in the income statement. However, the amount of credit sales is recorded in the balance sheet as trade receivables. As for the cash sales, the amount gets reflected in the cash balance in the balance sheet.
Important to note, if the company is following direct method of preparing cash flow statement, only cash sales will be recorded as part of cash flow from operating activities.

Cash payment of expenses

Any expenses made by the company on cash basis are deducted from the cash balance in the balance sheet and are also included in the income statement on the debit side.
Important to note, if the company is following direct method of preparing cash flow statement, only cash sales will be recorded as part of cash flow from operating activities.

Works Cited

Robinson, Thomas. "Understanding the Income Statement." Institute, CFA. Financial Reporting and Accounting. Boston: Custom, 2011. 29-48.