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Indicate Whether each of the following first-year transactions is classified as net
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Explanation of Solution
Statement of
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.
Operating activities:
Operating activities refer to the normal activities of a company to carry out the business. The examples for operating activities are purchase of inventory, payment of salary, sales, and others. Operating cash flows affects current assets and liabilities.
Investing activities:
Investing activities refer to the activities carried out by a company for acquisition of long term assets. The examples for investing activities are purchase of equipment, long term investment, sale of land, and others. Investing cash flows causes changes in non-current assets.
Financing activities:
Financing activities refer to the activities carried out by a company to mobilize funds to carry out the business activities. The examples for financing activities are purchase of bonds, issuance of common shares, and others. Financing cash flows have an impact on non-current liabilities and
Prepare
1. Recorded an
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Salaries expenses | xxx | |||
Accrued salaries payable | xxx | |||
(To record accrued salaries expense) |
Table (1)
- Supplies expense is a component of stockholders’ equity. There is an increase in the expense account which decreases the stockholders’ equity. Therefore, debit Supplies expense account.
- Accrued salaries payable is a liability and it is increased. Therefore, credit accrued salaries payable account.
The given transaction is matched with the cash flow activity and the related effects on cash.
Transaction | Cash Flow Activity | Effect on Cash |
Recorded an adjusting entry to record accrued salaries expense | No effect (NE) | No effect (NE) |
Table (2)
2. Paid cash to purchase new equipment.
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Plant and equipment | xxx | |||
cash | xxx | |||
(To record the purchase of new equipment) |
Table (3)
- Plant and equipment is an asset and it is increased. Therefore, debit plant and equipment account.
- Cash is an asset and it is decreased. Therefore, credit cash account.
The given transaction is matched with the cash flow activity and the related effects on cash.
Transaction | Cash Flow Activity | Effect on Cash |
Paid cash to purchase new equipment. | Net cash flow from investing activity (NCFI) | Outflow (-) |
Table (4)
3. Collected payments on account from customers.
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Cash | xxx | |||
xxx | ||||
(To record the collection of payables from customers) |
Table (5)
- Cash is an asset and it is increased. Therefore, debit cash account.
- Accounts receivable is an asset and it is decreased. Therefore, credit accounts receivable account.
The given transaction is matched with the cash flow activity and the related effects on cash.
Transaction | Cash Flow Activity | Effect on Cash |
Collected payments on account from customers | Net cash flow from operating activity (NCFO) | Inflow (+) |
Table (6)
4. Recorded and paid interest on debt to creditors.
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Interest expense | xxx | |||
Cash | xxx | |||
(To record payment of interest to creditors) |
Table (7)
- Interest expense is a component of stockholders’ equity. There is an increase in the expense account which decreases the stockholders’ equity. Therefore, debit interest expense account.
- Cash is an asset and it is decreased. Therefore, credit cash account
The given transaction is matched with the cash flow activity and the related effects on cash.
Transaction | Cash Flow Activity | Effect on Cash |
Recorded and paid interest on debt to creditors | Net cash flow from operating activity (NCFO) | Outflow (-) |
Table (8)
5. Declared and paid cash dividends to shareholders.
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
xxx | ||||
Cash | xxx | |||
(To record payment of cash dividends) |
Table (9)
- Retained earnings are a component of stockholders’ equity. There is an increase in the retained earnings account which decreases the stockholders’ equity. Therefore, debit retained earnings account.
- Cash is an asset and it is decreased. Therefore, credit cash account.
The given transaction is matched with the cash flow activity and the related effects on cash.
Transaction | Cash Flow Activity | Effect on Cash |
Declared and paid cash dividends to shareholders. | Net cash flow from financing activity (NCFF) | Outflow (-) |
Table (10)
6. Sold used equipment for cash dividends to shareholders.
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Cash | xxx | |||
Plant and equipment | xxx | |||
(To record sale of equipment for cash dividends) |
Table (11)
- Cash is an asset and it is increased. Therefore, debit cash account.
- Accumulated depreciation is a contra-asset account and it is decreased. Therefore, debit accumulated depreciation account.
- Plant and equipment is an asset and it is decreased. Therefore, credit plant and equipment account.
The given transaction is matched with the cash flow activity and the related effects on cash.
Transaction | Cash Flow Activity | Effect on Cash |
Sold used equipment for cash dividends to shareholders. | Net cash flow from investing activity (NCFI) | Inflow (+) |
Table (12)
7. Prepaid rent for the following period.
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Prepaid expenses | xxx | |||
Cash | xxx | |||
(To record the payment of prepaid rent) |
Table (13)
- Prepaid expense is an asset and it is increased. Therefore debit prepaid expenses account.
- Cash is an asset and it is decreased. Therefore, credit cash account.
The given transaction is matched with the cash flow activity and the related effects on cash.
Transaction | Cash Flow Activity | Effect on Cash |
Prepaid rent for the following period. | Net cash flow from financing activity (NCFF) | Outflow (-) |
Table (14)
8. Prepaid principal on revolving credit loan form bank.
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Short-term debt | xxx | |||
Cash | xxx | |||
(To record credit loan from bank) |
Table (15)
- Short-term debt is a liability and it is decreased. Therefore, debit short-term debt account.
- Cash is an asset and it is decreased. Therefore, credit cash account.
The given transaction is matched with the cash flow activity and the related effects on cash.
Transaction | Cash Flow Activity | Effect on Cash |
Prepaid principal on revolving credit loan form bank. | Net cash flow from financing activity (NCFF) | Outflow (-) |
Table (16)
9. Purchased raw materials inventory on account.
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Inventory | xxx | |||
Accounts payable | xxx | |||
(To record purchase of inventory on account) |
Table (17)
- Inventory is an asset and it is decreased. Therefore debit inventory account.
- Accounts payable is a liability and it is increased. Therefore, credit accounts payable account.
The given transaction is matched with the cash flow activity and the related effects on cash.
Transaction | Cash Flow Activity | Effect on Cash |
Purchased raw materials inventory on account. | No effect (NE) | No effect (NE) |
Table (18)
10. Made payments to suppliers on account.
Date | Accounts title and explanation | Ref. | Debit ($) | Credit ($) |
Accounts payable | xxx | |||
Cash | xxx | |||
(To record payments made to suppliers) |
Table (19)
- Accounts payable is a liability and it is decreased. Therefore, debit accounts payable account.
- Cash is an asset and it is decreased. Therefore, credit cash account.
The given transaction is matched with the cash flow activity and the related effects on cash.
Transaction | Cash Flow Activity | Effect on Cash |
Made payments to suppliers on account. | Net cash flow from operating activity (NCFO) | Outflow (-) |
Table (20)
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Chapter 12 Solutions
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