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To show: The
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Explanation of Solution
Prepare journal entries.
Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Date | Account title / Explanation | Post ref. | Debit | Credit |
Amount | Amount | |||
Cash | $325 | |||
Service revenue | $325 | |||
( To record the cash earned by providing service) |
Table (1)
- Cash is an asset account and it has increased the value of assets by $325. Hence, it is debited.
- Service revenue is a component of stock holders’ equity and it increases the stock holders’ equity by $325. Hence, it is credited.
Date | Account title / Explanation | Post ref. | Debit | Credit |
Amount | Amount | |||
Salaries and wagesexpense | $85 | |||
Cash | $85 | |||
( To record the salaries and wages expense payable ) |
Table (2)
- Salary and wage expense is a component of stockholders’ equityand it decreases the stock holders’ equity by $85. Hence, it is debited.
- Cash is an asset account and it decreases the value of assets by $85. Hence, it is debited.
Date | Account title / Explanation | Post ref. | Debit | Credit |
Amount | Amount | |||
Salaries and wagespayable | $15 | |||
Cash | $15 | |||
( To record the salaries and wages expense payable) |
Table (3)
- Salary and wage payable is a liabilitythat was payable at the end of previous month, which is currently being paid. Hence, it is debited by $85.
- Cash is an asset account and it decreases the value of assets by $15. Hence, it is debited.
2.
the amount that should be reported as net cash flow from operating activities.
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Answer to Problem 12.3E
There has been a $225 increase in cash that must be reported as net cash flow from operating activities.
Explanation of Solution
Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.
Determine the amount of total operating
Determine the amount net cash flow from operating activities.
3.
The amount that should be reported as net income.
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Answer to Problem 12.3E
The reported amount of net income is $240.
Explanation of Solution
Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.
Determine the amount of net income.
4.
To show: how the indirect method would convert net income to net cash flow from operating activities.
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Explanation of Solution
Statement of cash flows
Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.
Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.
Company | |
Statement of Cash Flows – Indirect Method | |
For the year ended December 31, | |
Particulars | Amount |
Cash flow from operating activities: | |
Net Income | $240 |
Less: Decrease in salaries and wages payable | ($15) |
Net cash flow from operating activities | $225 |
Table (4)
5.
To explain: the general rule about converting net income to operating cash flows is revealed in requirement 4.
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Explanation of Solution
Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.
Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.
As per requirement 4, the general rule states that subtract the items, when there is a decrease in liabilities (salary and wage payable)from net income to convert itinto cash flows from operating activities.
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Chapter 12 Solutions
Connect 1 Semester Access Card for Fundamentals of Financial Accounting
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