Teresa Ramirez and Lenny Traylor are examining the following statement of cash flows for Pina Clothing Store’s first year of operations. PINA CLOTHING STORE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 2020 Sources of cash From sales of merchandise $ 380,000 From sale of common stock 379,000 From sale of investment 124,000 From depreciation 77,000 From issuance of note for truck 28,000 From interest on investments 7,900 Total sources of cash 995,900 Uses of cash For purchase of fixtures and equipment 328,000 For merchandise purchased for resale 251,000 For operating expenses (including depreciation) 168,500 For purchase of investment 94,000 For purchase of truck by issuance of note 28,000 For purchase of treasury stock 11,000 For interest on note 2,800 Total uses of cash 883,300 Net Increase in Cash $ 112,600 Teresa claims that Pina’s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing $112,600. Lenny replies that it was not a superb first year—that the year was an operating failure, the statement was incorrectly presented, and $112,600 is not the actual increase in cash. Initial post: Answer the following questions. With whom do you agree, Teresa or Lenny? Explain your position. Is the statement of cash flows in the correct format? What are cash flows from Operating Activities? What are cash flows from Investing Activities? What are cash flows from Financing Activities?
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.
Teresa Ramirez and Lenny Traylor are examining the following statement of
| PINA CLOTHING STORE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 2020 |
|||||
| Sources of cash | |||||
| From sales of merchandise | $ | 380,000 | |||
| From sale of common stock | 379,000 | ||||
| From sale of investment | 124,000 | ||||
| From |
77,000 | ||||
| From issuance of note for truck | 28,000 | ||||
| From interest on investments | 7,900 | ||||
| Total sources of cash | 995,900 | ||||
| Uses of cash | |||||
| For purchase of fixtures and equipment | 328,000 | ||||
| For merchandise purchased for resale | 251,000 | ||||
| For operating expenses (including depreciation) | 168,500 | ||||
| For purchase of investment | 94,000 | ||||
| For purchase of truck by issuance of note | 28,000 | ||||
| For purchase of |
11,000 | ||||
| For interest on note | 2,800 | ||||
| Total uses of cash | 883,300 | ||||
| Net Increase in Cash | $ | 112,600 |
Teresa claims that Pina’s statement of cash flows is an excellent portrayal of a superb first year, with cash increasing $112,600. Lenny replies that it was not a superb first year—that the year was an operating failure, the statement was incorrectly presented, and $112,600 is not the actual increase in cash.
Initial post:
Answer the following questions.
- With whom do you agree, Teresa or Lenny? Explain your position.
- Is the statement of cash flows in the correct format?
- What are cash flows from Operating Activities?
- What are cash flows from Investing Activities?
- What are cash flows from Financing Activities?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
