Cash Flow Statement

On May 30 Good Deal pays its account 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.

Good Deal Co. Income Statement For the Month Ended May 31, 2007 Revenues $ 0 Expenses    0 Net Income $ 0

Good Deal Co. Income Statement For the Five Months Ended May 31, 2007 Revenues $800 Expenses   500 Net Income $300

Good Deal Co. Balance Sheet May 31, 2007 Assets Liabilities & Owner's Equity Cash $   850 Liabilities Accounts Receivable 0 Accounts Payable $       0 Inventory 200 Owner's Equity Supplies 150 Matt Jones, Capital (excl. net inc.) 2,000 Office Equipment   1,100 Matt Jones, Curr Yr. Net Income      300 Total Owner's Equity   2,300 Total Assets $2,300 Total Liabilities & Owner's Equity $2,300

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

Good Deal Co. Balance Sheets May 31 and April 30, 2007 Assets 5-31-07  4-30-07 Change  Cash $   850  $2,100 $(1,250) Accounts Receivable 0  0 0  Inventory 200  200 0  Supplies 150  150 0  Office Equipment   1,100           0    1,100  Total Assets $2,300  $2,450 $  (150) Liabilities & Owner's Equity Liabilities Accounts Payable $       0  $   150 $       0  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 $2,300  $2,450 $  (150)

Good Deal Co. Statement of Cash Flows For the Month Ended May 31, 2007 Operating Activities Net Income $        0  Decrease in Accounts Payable      (150) Cash Provided (Used) in Operating Activities (150) Investing Activities Purchase of Office Equipment (1,100) Financing Activities          0  Net Increase in Cash (1,250) Cash at the beginning of year   2,100  Cash at end of month $   850

Good Deal Co. Balance Sheets May 31, 2007 and December 31, 2006 Assets 5-31-07  12-31-06 Change Cash $   850  $   0 $   850 Accounts Receivable 0  0 0 Inventory 200  0 200 Supplies 150  0 150 Office Equipment   1,100       0   1,100 Total Assets $2,300  $   0 $2,300 Liabilities & Owner's Equity Liabilities Accounts Payable $       0  $   0 $       0 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 $2,300  $   0 $2,300

Good Deal Co. Statement of Cash Flows For the Five Months Ended May 31, 2007 Operating Activities Net Income $    300  Increase in Inventory (200) Increase in Supplies     (150) Cash Provided (Used) in Operating Activities (50) Investing Activities   Purchase of Office Equipment (1,100) Financing Activities Investment by Owner   2,000  Net Increase in Cash 850  Cash at the beginning of year         0  Cash at May 31, 2007 $   850

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 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. 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 under 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 of the cash flow statement reports the owner's investment into 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, 2006 (or January 1, 2007) and May 31, 2007.

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