Indicate Whether each of the following first-year transactions is classified as net
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 stockholders’ equity.
Prepare journal entries for the first year transactions.
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)
Want to see more full solutions like this?
Chapter 12 Solutions
GB 112/212 MANAGERIAL ACC. W/ACCESS >C<
- MCQarrow_forwardCorrect answerarrow_forwardMarin Company is a manufacturer of smartphones. Its controller resigned in October 2025. An inexperienced assistant accountant has prepared the following income statement for the month of October 2025. Marin Company Income Statement For the Month Ended October 31, 2025 Sales revenue $998,400 Less: Operating expenses Raw materials purchases $337,920 Direct labor cost 243,200 Advertising expense 115,200 Selling and administrative salaries 96,000 Rent on factory facilities 76,800 Depreciation on sales equipment 57,600 Depreciation on factory equipment 39,680 Indirect labor cost 35,840 Utilities expense 15,360 Insurance expense 10,240 1,027,840 Net loss $(29,440) Prior to October 2025, the company had been profitable every month. The company's president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional…arrow_forward
- Provide answerarrow_forwardMCQarrow_forwardExercise 3-12A (Algo) Conducting sensitivity analysis using a spreadsheet LO 3-5 Use the below table to answer the following questions. Selling Price$27.00 Variable 2,100 3,100 Fixed Cost Cost Sales Volume 4,100 Profitability 5,100 6,100 $25,700 8 $14,200 $33,200 $52,200 $71,200 $90,200 25,700 9 12,100 30,100 48,100 66,100 84,100 25,700 10 10,000 27,000 44,000 61,000 78,000 35,700 8 4,200 23,200 42,200 61,200 80,200 35,700 9 2,100 20,100 38,100 56,100 74,100 35,700 10 17,000 34,000 51,000 68,000 45,700 8 (5,800) 13,200 32,200 51,200 70,200 45,700 9 (7,900) 10,100 28,100 46,100 64,100 45,700 10 (10,000) 7,000 24,000 41,000 58,000 Required a. Determine the sales volume, fixed cost, and variable cost per unit at the break-even point. b. Determine the expected profit if Rundle projects the following data for Delatine: sales, 4,100 bottles; fixed cost, $25,700; and variable cost per unit, $10. c. Rundle is considering new circumstances that would change the conditions described in…arrow_forward
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College