Cash Flow Statement

On April 28 Good Deal orders $150 of supplies on account. The supplies arrive on April 30 along with an invoice showing that the full $150 is due by May 30. None of the supplies were used in April. This was the only transaction during April.

Matt prepared the following financial statements for Good Deal Co. as of April 30:

Good Deal Co. Income Statement For the Month Ended April 30, 2007 Revenues $ 0 Expenses    0 Net Income $ 0

Since no supplies were used in April, there is no change to the Supplies Expense account. The $150 is reported on the balance sheet in the asset account Supplies.

Good Deal Co. Income Statement For the Fourth Months Ended April 30, 2007 Revenues $800 Expenses   500 Net Income $300

Good Deal Co. Balance Sheet April 30, 2007 Assets Liabilities & Owner's Equity Cash $2,100 Liabilities Accounts Receivable 0 Accounts Payable $   150 Inventory 200 Owner's Equity Supplies      150 Matt Jones, Capital (excl. net inc.) 2,000 Matt Jones, Curr Yr. Net Income      300 Total Owner's Equity   2,300 Total Assets $2,450 Total Liabilities & Owner's Equity $2,450

As you can see from the balance sheet the company added assets of $150 (Supplies) and added its first liability of $150 (Accounts Payable).

A balance sheet comparing April 30 to March 31 and the resulting differences or changes is shown below:

Good Deal Co. Balance Sheets April 30 and March 31, 2007 Assets 4-30-07  3-31-07 Change Cash $2,100  $2,100 $    0 Accounts Receivable 0  0 0 Inventory 200  200 0 Supplies      150  $       0 $150 Total Assets $2,450  $2,300 $150 Liabilities & Owner's Equity Liabilities Accounts Payable $   150  $      0 $150 Owner's Equity Matt Jones, Capital (excl. net inc.) 2,000  2,000 0 Matt Jones, Curr Yr. Net Income      300       300      0 Total Owner's Equity   2,300    2,300       0 Total Liabilities & Owner's Equity $2,450  $2,300 $150 (If you are wondering why April 30 is shown before March 31, it is because accountants usually place the most current amounts closest to the account names. This is a courtesy to the reader in that these are assumed to be the more important amounts and will be easier to read if placed closest to the words.)

Good Deal Co. Statement of Cash Flows For the Month Ended April 30, 2007 Operating Activities Net Income $       0  Increase in Supplies (150) Increase in Accounts Payable      150  Cash Provided (Used) in Operating Activities 0  Investing Activities         0  Financing Activities Investment by Owner         0  Net Increase in Cash 0  Cash at the beginning of month   2,100  Cash at end of the month $2,100

The cash flow statement for the one month of April reports that there was no change in the Cash account from March 31 through April 30. The operating activities section reports the increase in Supplies, but also reports the increase in Accounts Payable.

On the statement of cash flows, think of the positive amounts (the numbers not in parentheses) as good for your cash balance. For example, if you don't pay your bills, that's good for your cash balance (but bad for the liability Accounts Payable which increases).

Think of the negative amounts (the numbers within parentheses) as not good for cash. For example, if you pay a bill, that's not good for your cash balance (but good for the liability Accounts Payable which decreases).

Good Deal Co. Balance Sheets April 30, 2007 and December 31, 2006 Assets 4-30-07  12-31-06 Change Cash $2,100  $   0 $2,100 Accounts Receivable 0  0 0 Inventory 200  0 200 Supplies      150       0      150 Total Assets $2,450  $   0 $2,450 Liabilities & Owner's Equity Liabilities Accounts Payable $   150  $   0 $   150 Owner's Equity Matt Jones, Capital (excl. net inc.) 2,000  0 2,000 Matt Jones, Curr Yr. Net Income      300       0      300 Total Owner's Equity   2,300       0   2,300 Total Liabilities & Owner's Equity $2,450  $   0 $2,450

Good Deal Co. Statement of Cash Flows For the Four Months Ended April 30, 2007 Operating Activities Net Income $   300  Increase in Inventory (200) Increase in Supplies     (150) Increase in Accounts Payable      150  Cash Provided (Used) in Operating Activities 100  Investing Activities          0  Financing Activities Investment by Owner   2,000  Net Increase in Cash 2,100  Cash at the beginning of year         0  Cash at April 30, 2007 $2,100

Let's review the statement of cash flows for the four months ended April 30:

• The operating activities section of the cash flow statement starts with the net income of $300 for the four-month period. The increase in Inventory is not good for cash, as shown by the negative $200. Similarly, the increase in Supplies is not good for cash and it is reported as a negative $150. The increase in Accounts Payable is good for cash (since some bills were not paid) so the increase in the liability account is a positive $150. Combining the amounts, the net change in cash that is explained by operating activities is a positive $100.
• There were no changes in long-term assets, hence no cash was involved in investing activities.
• There were no changes in long-term liabilities. There was a change in owner's equity since December 31, and as a result the financing activities section reports the owner's investment into Good Deal Co.
• Combining the operating, investing, and financing activities, the cash flow statement reports a change in cash of $2,100. This agrees with the change in the Cash account from $0 on December 31, 2006 to $2,100 on April 30, 2007.

  Part 1    Part 2    Part 3    Part 4    Part 5    Part 6    Part 7    Part 8        To Top