Purchases and Sales of Merchandise, Cash Flows Speedy Cycle, a bike shop, opened for business on April 1. It uses a periodic inventory system. The following transactions occurred during the first month of business: Required: For all accounting equations, if a financial statement item is not affected, select "No Entry" and leave the amount box blank or enter "0". If the effect is negative, use the minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. 1. Identify and analyze each of the following transactions of Speedy Cycle. April 1: Purchased five units from Lucas Corp. for $500 total, with terms 3/10, n/30, FOB destination. Activity Operating Accounts Account Payable Increase, Purchases Increase Statement(s) Balance Sheet and Income Statement How does this entry affect the accounting equation? Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues – Expenses = Income April 10: Paid for the April 1 purchase. Activity Operating Accounts Cash Decrease, Account Payable Decrease Statement(s) Balance Sheet only How does this entry affect the accounting equation? Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues – Expenses = Income April 15: Sold one unit for $200 cash. Activity Operating Accounts Cash Increase, Sales Revenue Increase Statement(s) Balance Sheet and Income Statement Feedback How does this entry affect the accounting equation? Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues – Expenses = Income April 18: Purchased ten units from Solo Corp. for $900 total, with terms 3/10, n/30, FOB destination. Activity Operating Accounts Account Payable Increase, Purchase Increase Statement(s) Balance Sheet and Income Statement How does this entry affect the accounting equation? Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues – Expenses = Income April 25: Sold three units for $200 each, cash. Activity Operating Accounts Cash Increase, Sales Revenue Increase Statement(s) Balance Sheet and Income Statement How does this entry affect the accounting equation? Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues – Expenses = Income April 28: Paid for the April 18 purchase. Activity Operating Accounts Cash Decrease, Account Payable Decrease Statement(s) Balance Sheet only How does this entry affect the accounting equation? Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues – Expenses = Income 2. Determine net income for the month of April. Speedy Cycle incurred and paid $100 for rent and $50 for miscellaneous expenses during April. Ending inventory is $967. (Ignore income taxes.) $ 3. Assuming that these are the only transactions during April (including rent and miscellaneous expenses), compute net cash flow from operating activities. Use the minus sign to indicate cash out flows, a decrease in cash or cash payments.
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.
Purchases and Sales of Merchandise,
Speedy Cycle, a bike shop, opened for business on April 1. It uses a periodic inventory system. The following transactions occurred during the first month of business:
Required:
For all
1. Identify and analyze each of the following transactions of Speedy Cycle.
April 1: Purchased five units from Lucas Corp. for $500 total, with terms 3/10, n/30, FOB destination.
| Activity | Operating |
| Accounts | Account Payable Increase, Purchases Increase |
| Statement(s) |
How does this entry affect the
| Balance Sheet | Income Statement | |||||||||
| Stockholders' | Net | |||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |
April 10: Paid for the April 1 purchase.
| Activity | Operating |
| Accounts | Cash Decrease, Account Payable Decrease |
| Statement(s) | Balance Sheet only |
How does this entry affect the accounting equation?
| Balance Sheet | Income Statement | |||||||||
| Stockholders' | Net | |||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |
April 15: Sold one unit for $200 cash.
| Activity | Operating |
| Accounts | Cash Increase, Sales Revenue Increase |
| Statement(s) | Balance Sheet and Income Statement |
How does this entry affect the accounting equation?
| Balance Sheet | Income Statement | |||||||||
| Stockholders' | Net | |||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |
April 18: Purchased ten units from Solo Corp. for $900 total, with terms 3/10, n/30, FOB destination.
| Activity | Operating |
| Accounts | Account Payable Increase, Purchase Increase |
| Statement(s) | Balance Sheet and Income Statement |
How does this entry affect the accounting equation?
| Balance Sheet | Income Statement | |||||||||
| Stockholders' | Net | |||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |
April 25: Sold three units for $200 each, cash.
| Activity | Operating |
| Accounts | Cash Increase, Sales Revenue Increase |
| Statement(s) | Balance Sheet and Income Statement |
How does this entry affect the accounting equation?
| Balance Sheet | Income Statement | |||||||||
| Stockholders' | Net | |||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |
April 28: Paid for the April 18 purchase.
| Activity | Operating |
| Accounts | Cash Decrease, Account Payable Decrease |
| Statement(s) | Balance Sheet only |
How does this entry affect the accounting equation?
| Balance Sheet | Income Statement | |||||||||
| Stockholders' | Net | |||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |
2. Determine net income for the month of April. Speedy Cycle incurred and paid $100 for rent and $50 for miscellaneous expenses during April. Ending inventory is $967. (Ignore income taxes.)
$
3. Assuming that these are the only transactions during April (including rent and miscellaneous expenses), compute net cash flow from operating activities. Use the minus sign to indicate cash out flows, a decrease in cash or cash payments.
$
4.
payments for acquisition of inventory which was unsold at the end of the month.
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