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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

CHALLENGE PROBLEM

In this chapter, you learned about three important financial statements: the income statement, statement of owner’s equity, and balance sheet. As mentioned in the margin note on page 34, most firms also prepare a statement of cash flows. Part of this statement reports the cash received from customers and cash paid for goods and services.

REQUIRED

Take another look at the Demonstration Problem for Kenny Young’s “Home and Away Inspections.” Note that when revenues are measured based on the amount earned, and expenses are measured based on the amount incurred, net income for the period was $4,165. Now, compute the difference between cash received from customers and cash paid to suppliers of goods and services by completing the form provided below. Are these measures different? Which provides a better measure of profitability?

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To determine

Compute the difference between cash received from customers and cash paid to suppliers of goods and services, state whether the measures are different and explain which provides a better measure of profitability.

Explanation

Calculate the difference between cash received from customers and cash paid to suppliers of goods and services:

Partial Cash flow statement
ParticularsAmountAmount
Cash from customers $3,700
Cash paid for wages$450  
Cash paid for rent$300 
Cash paid for utilities$50 
Cash paid for insurance$600 
Cash paid for supplies$100 

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