April Transactions and Financial Statements
On April 28 Good Deal ordered $150 of supplies on account. The supplies arrived on April 30 along with an invoice showing that the entire $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:
Since no supplies were used in April, there is no Supplies Expense. The $150 will be reported on the balance sheet in the asset account Supplies.
The balance sheet now includes $150 for the asset supplies and $150 for the liability accounts payable.
A balance sheet comparing April 30 amounts to March 31 amounts and the resulting differences or changes is shown here:
The changes that occured during the month of April will be used to prepare the SCF for the month of April.
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 and the resulting negative adjustment to the amount of net income. It also reports the increase in Accounts Payable and the resulting positive adjustment to the amount of net income.
Here's a Tip
On the statement of cash flows, think of the positive amounts (the numbers not in parentheses) as good for the company's cash balance. For example, if the company doesn't pay its bills, that's good for the company's 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 a company pays a bill, that's not good for its cash balance (but good for the liability Accounts Payable which decreases).
The following comparative balance sheet shows the changes between December 31, 2019 and April 30, 2020:
The changes will be used to prepare the SCF for the four months ended April 30.
The SCF for the period of January 1 through April 30 is:
Let's review the statement of cash flows for the four months ended April 30:
The operating activities section of the SCF starts with the net income of $300 that was earned during the four-month period. The increase in inventory was not good for cash, as shown by the negative adjustment of $200. Similarly, increasing the amount of supplies on hand was not good for cash and it is reported as a negative $150. The increase in accounts payable was good for the cash balance (since some bills were not paid); therefore, the increase in accounts payable appears as 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. As a result, no amount is shown for investing activities.
There were no changes in short-term loans payable or long-term liabilities. However, there was a change in owner's equity since December 31. As a result, the financing activities section reports the owner's $2,000 investment in Good Deal Co. as a positive amount.
Combining the amounts in operating, investing, and financing activities, the cash flow statement reports an increase in cash of $2,100. This agrees with the change in the balance sheet's Cash from $0 on December 31, 2019 to $2,100 on April 30, 2020.