May Transactions and Financial Statements

On May 30 Good Deal pays its accounts payable of $150. On May 31 Good Deal purchases office equipment (a new computer and printer) that will be used exclusively in the business. The cost of the office equipment is $1,100 and is paid for in cash. The equipment is put into service on May 31. There were no other transactions in May.

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

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Let's review the cash flow statement for the five months ended May 31:

  • The operating activities section starts with the net income of $300 for the five-month period. The increase in Inventory was not good for cash, as shown by the negative $200. Similarly, the increase in Supplies was not good for cash and it is reported as a negative $150. Combining the amounts, the net change in cash that is explained by operating activities is a negative $50.

  • The increase in long-term assets is reported as (1,100) since it was a cash outflow of $1,100.

  • There were no changes in short-term loans payable or long-term liabilities. There was a change in owner's equity since December 31, and as a result the financing activities section of the cash flow statement reports the owner's investment of $2,000 in the Good Deal Co.

  • Combining the operating, investing, and financing activities, the statement of cash flows reports an increase in cash of $850. This agrees with the change in the Cash account as shown on the balance sheets from December 31, 2019 (or January 1, 2020) and May 31, 2020.

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