Below is a summary of all transactions of KEV Consulting for the month of October. Cash transactions Cash collections from: Sale of unused office furniture s45,000 Borrowing from bank Customers Cash payments for: Employee salaries Dividends to stockholders Advertising expense Utilities expense 125,000 600,000 275,000 25,000 250,000 8,000 Purchased an office equipment 155,000 2,000 |office supplies Noncash Transactions Issue note payable for equipment|5750,000 Services to customers on account 125,000 Purchase supplies on account 300 Prepare a statement of cash flows for the month of October, properly classifying each of the transactions into operating, investing, and financing activities. The cash balance at the beginning of October is $50,000.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Answer)
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KEV Consulting |
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Cash Flow Statement |
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Cash Flow from Operating Activities |
Amount (In $) |
Amount (In $) |
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Collection from Customers |
6,00,000 |
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Cash Paid for Employee Salaries |
(2,75,000) |
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Advertisement Expense |
(2,50,000) |
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Utilities Expense |
(8,000) |
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Purchase of office supplies |
(2,000) |
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Net cash generated from (used in) operating activities (A) |
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65,000 |
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Cash Flow from Investing Activities |
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Sale of Office Furniture |
45,000 |
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Cash paid for purchase of office furniture |
(1,55,000) |
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Net cash generated from (used in) Investing activities (B) |
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(1,10,000) |
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Cash Flow from Financing Activities |
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Borrowing from Bank |
1,25,000 |
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Dividend paid to Stockholders |
(25,000) |
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Net cash generated from (used in) Financing activities (C ) |
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1,00,000 |
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Net cash generated from (used in) Operating Activities, Investing Activities and Financing activities (A) + (B) + (C ) |
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55,000 |
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Opening Balance of cash and Cash Equivalents |
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50,000 |
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Closing Balance of cash and Cash Equivalents |
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1,05,000 |
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