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 in cash. There were no other transactions in May.
A balance sheet comparing May 31 amounts to April 30 amounts and the resulting differences or changes is shown here:
The following comparative balance sheet shows the changes between December 31, 2019 and May 31, 2020:
The SCF for the period of January 1 through May 31 is:
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 adjustment of $200. Similarly, the increase in Supplies was not good for cash and it is reported as a negative adjustment of $150. Combining the amounts, the net change in cash that is explained by operating activities is a negative $50.
The investing activities section reports the increase in long-term assets as (1,100) since it was a cash outflow of $1,100. The additions to property, plant and equipment are frequently described as capital expenditures.
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 of the SCF reports the owner's investment of $2,000, which increased Good Deal's cash balance.
Combining the amounts from the operating, investing, and financing activities, the SCF reports an increase in cash of $850. This agrees with the change in the Cash amounts reported on the balance sheets dated December 31, 2019 and May 31, 2020.