Kaylee James, a connoisseur of fine chocolate, opened Kaylee's Sweets in Collegetown on February 1. The shop specializes in a selection of gourmet chocolate candies and a line of gourmet ice cream. You have been hired as manager. Your duties include maintaining the store's financial records. The following transactions occurred in February, the first month of operations. Required: For the transactions below, indicate how the transactions will affect the statement of cash flows. Cash outflows should be entered as negative amounts. Also indicate "Operating" or "Investing" or "Financing" as appropriate for each transaction. If there is no effect on the statement of cash flows, select "No effect". Transaction a. Received four shareholders' contributions totaling $30,200 cash to form the corporation; issued 400 shares of $0.10 par value common stock. b. Paid three months' rent for the store at $1,750 per month (recorded as prepaid expenses). c. Purchased and received candy inventory for $6,000 on account, due in 60 days. d. Purchased supplies for $1,560 cash. e. Negotiated and signed a two-year $11,000 loan at the bank, receiving cash at the time. f. Used the money from (e) to purchase a computer for $2,750 (for recordkeeping and inventory tracking); used the balance for furniture and fixtures for the store. g. Placed a grand opening advertisement in the local paper for $400 cash; the ad ran in the current month. h. Made sales on Valentine's Day totaling $3,500; $2,675 was in cash and the rest on accounts receivable. i. The cost of the candy sold in (h) above was $1,600. (Reminder. Used inventory is an expense called Cost of Goods Sold.) j. Made a $550 payment on accounts payable. k. Incurred and paid employee wages of $1,300. 1. Collected accounts receivable of $600 from customers. m. Made a repair to one of the display cases for $400 cash. n. Made cash sales of $1,200 during the rest of the month. o. The cost of the candy sold in (n) above was $600. Type of Activity Financing Investing No effect Operating Effect on Cash Flows
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![Kaylee James, a connoisseur of fine chocolate, opened Kaylee's Sweets in Collegetown on February 1. The shop specializes in a
selection of gourmet chocolate candies and a line of gourmet ice cream. You have been hired as manager. Your duties include
maintaining the store's financial records. The following transactions occurred in February, the first month of operations.
Required:
For the transactions below, indicate how the transactions will affect the statement of cash flows. Cash outflows should be entered as
negative amounts. Also indicate "Operating" or "Investing" or "Financing" as appropriate for each transaction. If there is no effect on
the statement of cash flows, select "No effect".
Transaction
a. Received four shareholders' contributions totaling $30,200 cash to form the corporation; issued 400 shares of
$0.10 par value common stock.
b. Paid three months' rent for the store at $1,750 per month (recorded as prepaid expenses).
c. Purchased and received candy inventory for $6,000 on account, due in 60 days.
d. Purchased supplies for $1,560 cash.
e. Negotiated and signed a two-year $11,000 loan at the bank, receiving cash at the time.
f. Used the money from (e) to purchase a computer for $2,750 (for recordkeeping and inventory tracking); used
the balance for furniture and fixtures for the store.
g. Placed a grand opening advertisement in the local paper for $400 cash; the ad ran in the current month.
h. Made sales on Valentine's Day totaling $3,500; $2,675 was in cash and the rest on accounts receivable.
i. The cost of the candy sold in (h) above was $1,600. (Reminder. Used inventory is an expense called Cost of
Goods Sold.)
j. Made a $550 payment on accounts payable.
k. Incurred and paid employee wages of $1,300.
I. Collected accounts receivable of $600 from customers.
m. Made a repair to one of the display cases for $400 cash.
n. Made cash sales of $1,200 during the rest of the month.
o. The cost of the candy sold in (n) above was $600.
Type of Activity
Financing
Investing
No effect
Operating
Effect on Cash
Flows](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0c0641eb-4aac-4481-bee5-70a54cabe3f1%2F54bbe7fd-4d3e-4ae9-b375-7155072d59dc%2Fu9oqnik_processed.png&w=3840&q=75)
![](/static/compass_v2/shared-icons/check-mark.png)
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)