The 2014 comparative balance sheet and 2014 income statement of Simple Things Industries Ltd, have just been distributed at a meeting of the company’s board of directors. The members of the board of directors were desirous of knowing the reason or reasons why the cash balance different from the net income. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the directors. Simple Things Industries Ltd.Comparative Balance SheetDecember 31, 2014 and 2013 20142013Increase/(Decrease) Assets Cash 190,000 30,000 ? Accounts Receivable 220,000 230,000 ? Supplies 340,000 310,000 ? Prepaid expenses 10,000 30,000 ? Intangible assets 90,000 90,000 ? Equipment, net 900,000 790,000 ? Total Assets 1,750,000 1,480,000 Liabilities Accounts payable 140,000 90,000 ? Accrued liabilities 160,000 190,000 ? Income tax payable 140,000 120,000 ? Long-term notes payable 450,000 500,000 ? Stockholders' Equity Common Stock 310,000 200,000 ? Retained earnings 640,000 400,000 ? Treasury stock (90,000) (20,000) ? Total liabilities and stockholders' equity 1,750,000 1,480,000 Simple Things Industries Ltd Income Statement Year Ended December 31,2014 Revenues and gains: Sales revenue 1,900,000 Gain on sale of Equipment 60,000 Total revenues and gains 1,960,000 Expenses Cost of goods sold 850,000 Depreciation expense 190,000 Other operating expense 360,000 Total expenses 1,400,000 Income before income taxes 560,000 Income tax expense 180,000 Net Income 380,000 Notes Acquisition of Equipment during 2014 450,000Sale proceed from sale of Equipment 210,000Receipt for issuance of notes payable 50,000Payment for note payable 100,000Dividend paid 140,000Book value of equipment sold 150,000Requirements:1. Which category of the statement of cash flow is considered as the most important? Why?2. Prepare a complete statement of cash flows for 2014 using the indirect method using the information.

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The 2014 comparative balance sheet and 2014 income statement of Simple Things Industries Ltd, have just been distributed at a meeting of the company’s board of directors. The members of the board of directors were desirous of knowing the reason or reasons why the cash balance different from the net income. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the directors.

Simple Things Industries Ltd.
Comparative Balance Sheet
December 31, 2014 and 2013
	2014	2013	Increase/(Decrease)
Assets
Cash	190,000	30,000	?
Accounts Receivable	220,000	230,000	?
Supplies	340,000	310,000	?
Prepaid expenses	10,000	30,000	?
Intangible assets	90,000	90,000	?
Equipment, net	900,000	790,000	?
Total Assets	1,750,000	1,480,000
Liabilities
Accounts payable	140,000	90,000	?
Accrued liabilities	160,000	190,000	?
Income tax payable	140,000	120,000	?
Long-term notes payable	450,000	500,000	?
Stockholders' Equity
Common Stock	310,000	200,000	?
Retained earnings	640,000	400,000	?
Treasury stock	(90,000)	(20,000)	?
Total liabilities and stockholders' equity	1,750,000	1,480,000

Simple Things Industries Ltd
Income Statement
Year Ended December 31,2014
Revenues and gains:
Sales revenue	1,900,000
Gain on sale of Equipment	60,000
Total revenues and gains		1,960,000
Expenses
Cost of goods sold	850,000
Depreciation expense	190,000
Other operating expense	360,000
Total expenses		1,400,000
Income before income taxes		560,000
Income tax expense		180,000
Net Income		380,000

Notes
Acquisition of Equipment during 2014		450,000
Sale proceed from sale of Equipment		210,000
Receipt for issuance of notes payable		50,000
Payment for note payable		100,000
Dividend paid		140,000
Book value of equipment sold		150,000

Requirements:

1. Which category of the statement of cash flow is considered as the most important? Why?

2. Prepare a complete statement of cash flows for 2014 using the indirect method using the information.

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