Financial Statements: Income, Cash Flow, and Balance Sheet

12. Financial Statements
Incorporating a business would need a thorough analysis of its implications. In this section the three financial statements – balance sheet, profit and loss statements, and the Income statements would be prepared to undertake this process.
Income Statement
The net income of the company shows its performance in a specific period of time. In our case here, that performance is provided in a yearly basis in the span of 5 years. After calculating the net income before taxes it shows that even our first year shows significant profits which is $1,290,761. In the succeeding years, this net income would continue to increase to an incremental value of $7,728,832 after the fifth year.
Nonetheless, as a legal institution this business would have to pay taxes to both the government as it conducts business to its clients and other business. However, based on the statement above, the taxes for the first second years are zero. This would then continue to increase in the succeeding years, which is based on a percentage of the total net income that the company was able to get for a period of time. Specifically, by the third year of the business, the company paid for $883,876 for a corporate tax rate of 20%. By the succeeding years, the company’s net income would further grow, necessitating the growth for the income tax rates which are both $330,945.
The table above provides a more specific view of the marginal income tax rates for the company based on the items (salary, resource rental fee, and dividends). After five years of operation it is projected that the marginal tax rate would amount to $127,000. Adding this to the corporate income tax rate of $1,545,766 would give us a total of $1,672, 766. Comparing this to the previous computation it is noticeable that this number is much higher as compared to the previous one when the company is considered an LCC. After considering both of the different tax rates, it is clear that by incorporating the business would surely lead to double taxation.
Cash Flow Statement
This next statement is very important for the determination of the business profitability in the long run. Thus when computing for the cash flow, we took into account three sources of cash flow in the corporation. The cash flow is projected below.
By considering the cash flow above, it is apparent that the company should be able to generate significant positive cash flow through collection from customers and financing in the early years, the first year for example should generate a cash flow of about $1,382,111. While the most significant sources for positive cash flows are from collection from our customers the contribution from both the entrepreneurs and the financing from the bank and investors also add $29,370 in the first year. This would, however, become negative in the succeeding years. It is also important to note that this positive cash flow is achieved even after deducting the cost for start-up expense ($6,500) and long-term expenses
As for the entrepreneurs salary, the positive cash flow even in ...