Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
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Chapter 12, Problem 2GLP
To determine

Cash Flow Statement:

Cash flow statement gives the information related to the cash inflow and outflow of the company. It gives the information cash inflow and out flow from the operating, investing and financing activities.

Journal Entries:

Adjusting entries are those entries which are made at the end of the period to follow the matching the principal concept of the account.

To prepare: Journal entries and cash flow statement.

Expert Solution & Answer
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Explanation of Solution

Decrease in the account receivable

Date Account title and explanation post ref. Amount ($) Amount ($)
Cash 200
Account receivable 200
(to record the account receivable)

Table(1)

  • Cash is the assets account. Here, cash has been received from the account receivable which increases the cash of the company. So, debit the cash account.
  • Account receivable account is the assets account. Here, account receivable is decreased. So credit the account receivable account.

Purchase the inventory by cash

Date Account title and explanation post ref. Amount ($) Amount ($)
Inventory account 440
Cash 440
(to record the purchase of the inventory)

Table(2)

  • Inventory is the assets account. Here, the inventory of the company is decreasing which decreases the asset of the company. So, debit the inventory account.
  • Cash is the asset account. Here, cash of the company is decreasing which decrease the asset value of the company. So credit the assets account.

Decrease in the prepaid expenses

Date Account title and explanation post ref. Amount ($) Amount ($)
Expense 20
Prepaid expense 20
(to record the prepaid expenses)

Table(3)

  • Expense is the expense account. Since expense is increasing it reduces the equity. Hence, debit expense account.
  • Prepaid expense is the assets account. Here the prepaid expense is reducing. So, credit the prepaid expense account.

Increase in the prepaid expenses

Date Account title and explanation post ref. Amount ($) Amount ($)
Prepaid rent 40
Cash 40
(to record the prepaid rent)

Table(4)

  • Prepaid rent is the assets account. Here, rent has been paid in advance which increase the assets of the company. So, debit the prepaid expense.
  • Cash is the asset account. Here, cash of the company is decreasing which decrease the asset value of the company. So credit the assets account.

Decrease in the account payable

Date Account title and explanation post ref. Amount ($) Amount ($)
Account payable 200
Cash 200
(to record the account payable)

Table(5)

  • Account payable is the liability account. Since account payable reduces the equity of the company. Hence, debit the account payable.
  • Cash is the assets account. Since, the cash of the company is reducing. Hence, credit the cash account.

Increase in salaries payable

Date Account title and explanation post ref. Amount ($) Amount ($)
Salary expense 180
Salaries payable 180
(to record the salaries payable)

Table(6)

  • Salaries expense account is the expense account. Here, salaries expense of the company is increasing. So, debit the salaries expense account.
  • Salaries payable is the liabilities account. Here, salaries payable is increasing which increase the liabilities of the company. So, credit the salaries payable account.

Increase in utilities payable

Date Account title and explanation post ref. Amount ($) Amount ($)
Utilities expense 60
Utilities payable 60
(to record the utilities payable)

Table(7)

  • Utilities expense account is the expense account. Here, utilities expense of the company is increasing. So, debit the utilities expense account.
  • Utilities payable is the liabilities account. Here, utilities payable is increasing which increase the liabilities of the company. So, credit the utilities payable account.

Cash flow statement (direct method)

Cash flow from operating activities (direct method) Amount ($)
Cash receipts form customer 97,400
Cash paid for rent (9,040)
Cash paid for salaries (17,820)
Cash paid for insurance (3,780)
Cash paid for interest (3,600)
Cash paid for utilities (2,740)
Cash paid for inventory (42,640)
Net cash flow from operating activities 17,780

Table(8)

Working note:

Given,
Sales revenue is $97,200.
Account receivable for the year 2016 is $5,800.
Account receivable for the year 2017 is $5,600.

Computation of cash received from customer,

    Cashreceiptfromcustomers=( Salesrevenue+Accountreceivable2016 Accountrecevable2017 ) =$97,200+$5,800$5,600 =97,400

Cash receipt from customer is $97,400.

Given,
Rent expense is $9,000.
Prepaid rent for the year 2017 is $220.
Prepaid rent for the year 2016 is $180.

Computation of the cash paid for rent,

    Cashpaidforrent=Rentexpense+Prepaidrent2017Prepaidrent2016 =$9,000+$220$180 =$9,040

Cash paid for rent is $9,040.

Given,
Salaries expense is $18,000.
Salaries payable for the year 2016 is $700.
Salaries payable for the year 2017 is $880

Computation of the salaries payable,

    Cashpaidforsalaries=( Salariesexpense+Salariespayable2016 Salariespayable2017 ) =$18,000+$700$880 =$17,820

Cash paid for the salaries is $17,820.

Given,
Insurance expense is $3,800.
Prepaid insurance for the year 2017 is $260.
Prepaid insurance for the year 2016 is $280.

Computation of cash paid for insurance,

    Cashpaidforinsurance=( Insuranceexpense+Prepaidinsurance2017 Prepaidinsurance2016 ) =$3,800+$260$280 =$3,780

Cash paid for insurance is $3,780.

Given,
Utilities expense is $2,800.
Utilities payable for the year 2016 is $160.
Utilities payable for the year 2017 is $220.

Computation of cash paid for utilities,

    Cashpaidforutilities=( Utilitiesexpense+Utilitiespayable2016 Utilitiespayable2017 ) =$2,800+$160$220 =$2,740

Cash paid for utilities is $2,740.

Given,
Cost of goods sold is $42,000.
Opening inventory is $ 1,540.
Closing inventory is $ 1,980
Account payable for the year 2016 is $4,600.
Account receivable for the year is $4,400.

Computation of cash paid to acquire inventory,

    Cashpaidtoacquireinventory=[ Costofgoodssold +( ClosinginventoryOpeningeinventory ) +( Accountpayable2016 Accountpayable2017 ) ] =$42,000+( $1,980$1,540 )+( $4,600$4,400 ) =$42,640

Cash paid to acquire inventory is $42,640.

Cash flow statement (Indirect method)

Cash flow from operating activities Amount ($)
Net income 6,000
Adjustment for noncash expense
Add: Depreciation expense 12,000
Adjustment for working capital changes:
Less Increase in net working capital (220)
Net cash flow from operating activities 17,780

Table(9)

Working note:

Calculate the amount of the net working capital

Particulars 2017 2016 Increase/decrease
Account receivable 5,600 5,800 (200)
Inventory 1,980 1,540 440
Prepaid rent 220 280 (60)
Prepaid insurance 260 180 80
Increase/decrease in current assets (A) 260
Account payable 4,400 4,600 (200)
Salaries payable 880 700 180
Utilities payable 220 160 60
Increase/decrease in current liabilities (B) 40
Increase/decrease in working capital(A)-(B) 220

Table(10)

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Chapter 12 Solutions

Managerial Accounting

Ch. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 10DQCh. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Prob. 13DQCh. 12 - Prob. 14DQCh. 12 - Prob. 15DQCh. 12 - Prob. 1QSCh. 12 - Prob. 2QSCh. 12 - Prob. 3QSCh. 12 - Prob. 4QSCh. 12 - Prob. 5QSCh. 12 - Prob. 6QSCh. 12 - Prob. 7QSCh. 12 - Prob. 8QSCh. 12 - Prob. 9QSCh. 12 - Prob. 10QSCh. 12 - Prob. 11QSCh. 12 - Prob. 12QSCh. 12 - Prob. 13QSCh. 12 - Prob. 14QSCh. 12 - Prob. 15QSCh. 12 - Prob. 16QSCh. 12 - Prob. 17QSCh. 12 - Prob. 18QSCh. 12 - Prob. 19QSCh. 12 - Prob. 20QSCh. 12 - Prob. 21QSCh. 12 - Prob. 22QSCh. 12 - Prob. 23QSCh. 12 - Prob. 24QSCh. 12 - Prob. 25QSCh. 12 - Prob. 26QSCh. 12 - Prob. 27QSCh. 12 - Prob. 1ECh. 12 - Prob. 2ECh. 12 - Prob. 3ECh. 12 - Prob. 4ECh. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - Prob. 7ECh. 12 - Prob. 8ECh. 12 - Prob. 9ECh. 12 - Exercise Reconstructed entries For each of the...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Direct: Preparing statement of cash flows Refer to...Ch. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Prob. 1PSACh. 12 - Prob. 2PSACh. 12 - Prob. 3PSACh. 12 - Prob. 4PSACh. 12 - Prob. 5PSACh. 12 - Prob. 6PSACh. 12 - Prob. 7PSACh. 12 - Prob. 8PSACh. 12 - Prob. 1PSBCh. 12 - Prob. 2PSBCh. 12 - Prob. 3PSBCh. 12 - Prob. 4PSBCh. 12 - Prob. 5PSBCh. 12 - Prob. 6PSBCh. 12 - Prob. 7PSBCh. 12 - Prob. 8PSBCh. 12 - Prob. 12SPCh. 12 - Prob. 1GLPCh. 12 - Prob. 2GLPCh. 12 - Prob. 3GLPCh. 12 - Prob. 1AACh. 12 - Prob. 2AACh. 12 - Prob. 3AACh. 12 - Prob. 1BTNCh. 12 - Prob. 2BTNCh. 12 - Prob. 3BTNCh. 12 - Prob. 4BTNCh. 12 - Prob. 5BTNCh. 12 - Prob. 6BTNCh. 12 - Prob. 7BTN
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