Free accounting sample paper on Statement of Cash Flow

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  1. Preparing a statement of cash flow

This is a company’s financial reports that gives a description of the sources of funds and bow such funds have been spent. In coming up with a company’s statement of cash flow using the direct-method one just reports the main classes of the cash receipts and the payments only. It starts with the cash received then less the cash spent for one to come up with the net cash flow. In this case, depreciation is excluded because although it is an expense that has an effect on the net profit, it is not money neither spent nor received (Hogget, 2009). Therefore, depreciation is not included in the cash flow statement.

Adjustments

Motor vehicle account

Balance brought down 84,000
Disposal 3,000
Purchase 3,000 Balance carried down 90,000
90,000 90,000
Disposal of motor vehicle account
Original cost of motor vehicle 10,000
Loss on disposal of motor vehicle 7,000
Cash in hand or at bank 3,000

Inventory account

Balance brought down 40,000
Increase in inventory 12,000 Balance carried down 52,000
52,000 52,000

Accounts receivable

Balance brought down 16,400 Decrease in accounts receivable 1,400
Balance carried down 15,000
16,400 16,400

Accounts payable

Increase in accounts payable 6,000 Balance brought down         20,000
Balance carried down 14,000
20,000 20,000

Prepaid insurance account

Balance brought down 600
Increase in prepaid insurance 100 Balance carried down 700
700 700

K and L hardware

Statement of cash flow

As at 30th June 2011

Cash from operating activities
Operating profit 63,000
Add loss on disposal of motor vehicle 7,000
Add accounts payable 6,000
Add interest on disposal of motor vehicle 1750
Less increase in inventory (12,000)
Les accounts receivable (1,400)
Less total expenses paid (50,175)
14,175 14,175
Cash from investing activities
Sale of motor vehicle 3,000
Purchase of motor vehicle (16,000)
Purchase of inventory (12,000)
Less purchase of motor vehicle (3,000)
Less prepaid insurance 100
(27,900) (27,900)
Cash form financing
Retained earnings: ken 23,350
     Len 1,975
Income from long-term investment (6,000)
Less repayment of loan (10,000)
9,325 9,325
Change in cash  (4,400)
Analysis for the change in cash
Cash at the beginning 18,400
Change in cash (4,400)
Cash at the end 14,000
  1. Comment on the Statement of Cash Flow

Operating activities

These are the cash spent to do activities for which the business was established to perform. The hardware’s operating activities cash is 14,175 this is the amount of cash that remains to the business after deducting daily operations. This means that this business is trying to minimize operation expenditure of which this is positive to the business.

Investing activities

This is money spent to buy assets or equipment needed by a business for operation. At K and L hardware, cash from investing activities is (27,900) is the extra money that partners incur in acquiring the assets needed for business operation. The partners have to struggle their best to ensure an increase in cash from investing activities. This is because, in the end, the cash from investments can be used to repay existing debts.

Financing activities

This is the money acquired to carry out it operation in the form of loan, retained earnings or shares. At K and L hardware, this has been on a positive trend of 9,325 this means that the business spends reasonable amount of money to resettle debts. This could have a positive impact on the business operation in the long run.


References


Hogget, J. R. (2009). Financial Accounting: 7th edition. Camberwell: John Wiley & Sons

Australia Ltd.