April Transactions and Financial Statements
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:
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:
The cash flow statement for the 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.
Here's a Tip
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).
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 in 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, 2017 to $2,100 on April 30, 2018.