Question 3: Statement of cash flows You are the accountant for Fun Times Ltd, an Australian trampoline wholesaler. A summary of assets, liabilities and equity of Fun Times Ltd is presented below, together with details of revenue, expenses and profit for the year ended 30 June 2024: Assets, liabilities and equity as at 30 June 2024 2024 2023 $ $ Assets Cash 128,000 - Accounts receivable 430,000 300,000 Provision for doubtful debts (60,000) (40,000) Interest receivable 2,000 - Plant 780,000 500,000 Accumulated depreciation – plant (180,000) (100,000) Inventory 220,000 160,000 Liabilities Bank overdraft - 20,000 Accounts payable 270,000 192,000 Accrued wages 10,000 8,000 Provision for annual leave 50,000 30,000 Loans 150,000 - Equity Share capital 250,000 100,000 Revaluation surplus 40,000 40,000 Retained earnings 550,000 430,000
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.
Question 3: Statement of cash flows
You are the accountant for Fun Times Ltd, an Australian trampoline wholesaler. A summary of assets, liabilities and equity of Fun Times Ltd is presented below, together with details of revenue, expenses and profit for the year ended 30 June 2024:
|
Assets, liabilities and equity as at 30 June 2024 |
||
|
2024 |
2023 |
|
|
$ |
$ |
|
|
Assets |
||
|
Cash |
128,000 |
- |
|
|
430,000 |
300,000 |
|
Provision for doubtful debts |
(60,000) |
(40,000) |
|
Interest receivable |
2,000 |
- |
|
Plant |
780,000 |
500,000 |
|
Accumulated |
(180,000) |
(100,000) |
|
Inventory |
220,000 |
160,000 |
|
Liabilities |
||
|
Bank overdraft |
- |
20,000 |
|
Accounts payable |
270,000 |
192,000 |
|
Accrued wages |
10,000 |
8,000 |
|
Provision for annual leave |
50,000 |
30,000 |
|
Loans |
150,000 |
- |
|
Equity |
||
|
Share capital |
250,000 |
100,000 |
|
Revaluation surplus |
40,000 |
40,000 |
|
|
550,000 |
430,000 |
|
Revenue, expenses and profit for the year ended 30 June 2024 |
|
|
2024 |
|
|
$ |
|
|
Revenue: |
|
|
Sales revenue |
1,600,000 |
|
Interest |
20,000 |
|
Gain on disposal of plant |
30,000 |
|
Expenses: |
|
|
Cost of goods sold |
(500,000) |
|
Doubtful debts |
(30,000) |
|
Depreciation – plant |
(100,000) |
|
Wages |
(260,000) |
|
Annual leave |
(30,000) |
|
Interest |
(8,000) |
|
Rent |
(40,000) |
|
Net profit for the year |
682,000 |
Additional information:
- The following expenses are paid as incurred: rent and interest.
- Accruals of wages are made before payment.
- The carrying amount of plant sold during the year was $100,000.
- The ‘accounts payable’ account is used for inventory purchases.
- The bank overdraft is payable on demand and forms part of cash equivalents.
- Fun Times Ltd classifies interest received as cash flows from investing activities, and interest paid as an operating activity.
Required:
Prepare a statement of cash flows in accordance with AASB 107 for the year ended 30 June 2024, using the direct method. Show all relevant workings. Comparative figures and notes are not required. Note: you are not required to consider or account for income tax.
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