
Concept explainers
Cash flow statement gives the information related to the
To prepare: Journal ledger assignment

Explanation of Solution
a.
Retirement of the notes payable
Date | Account title and explanation | Post ref. | Amount($) | Amount($) |
Notes payable | 30,000 | |||
Cash | 30,000 | |||
(To record the retirement of notes payable) |
Table (1)
- Notes payable account is the liability account. Here, notes payable has been retired which decreases the liability of the company. So, debit the notes payable account.
- Cash is the assets account of the company. Here, cash has been paid to retire the notes payable which decrease the assets of the company. So, credit the cash account.
b.
Payment of the dividend
Date | Account title and explanation | Post ref. | Amount($) | Amount($) |
Dividend | 90,310 | |||
Cash | 90,310 | |||
(To record the payment of the dividend) |
Table (2)
- Dividend is the expense account for the company. Here, dividend is being paid which increase the expense for the company. So, credit the dividend expense account.
- Cash is the assets account of the company. Here, cash has been paid for the payment of the dividend which decrease the assets of the company. So, credit the cash account.
c.
Purchase of the equipment
Date | Account title and explanation | port ref. | Amount($) | Amount($) |
Equipment | 48,600 | |||
Cash | 48,600 | |||
(to record the purchase of the equipment) |
Table (3)
- Equipment account is the assets account. Here, assets have been purchased which increase the assets of the company. So, debit the equipment assets account.
- Cash is the assets account. Here cash has been paid to acquire the equipment assets which decrease the assets of the company. So, credit the cash account.
d.
Sale of the equipment
Date | Account title and explanation | port ref. | Amount($) | Amount($) |
Cash | 50,600 | |||
Profit & loss | 2,000 | |||
Equipment | 48,600 | |||
(to record the sale of the equipment) |
Table (4)
- Cash account is the asset account. Here, cash has been received by the company which increases the assets of the company. So, debit the cash account.
- Profit & loss account is the revenue account. Here, gain of on sale of the equipment is the revenue. So, credit the
profit and loss account.
e.
Increase in the
Date | Account title and explanation | port ref. | Amount($) | Amount($) |
Account receivable | 14,000 | |||
Sales | 14,000 | |||
(to record the account receivable) |
Table (5)
- Account receivable account is the assets account. Here, account receivable is increase by sale on credit. So debit the account receivable account.
- Sales account is the revenue account. Here, sales generate revenue for the company. So, credit the sale account.
Decrease in the prepaid expenses
Date | Account title and explanation | port ref. | Amount($) | Amount($) |
Expense | 1,000 | |||
Prepaid expense | 1,000 | |||
(to record the prepaid expenses) |
Table (6)
- Expense is the expense account. Since expense is increasing it reduces the equity. Hence, debit expense account.
- Prepaid expense is the assets account. Here the prepaid expense is reducing. So, credit the prepaid expense account.
Decrease in the account payable
Date | Account title and explanation | port ref. | Amount($) | Amount($) |
Account payable | 5,000 | |||
Cash | 5,000 | |||
(to record the account payable) |
Table (7)
- Account payable is the liability account. Since account payable reduces the equity of the company. Hence, debit the account payable.
- Cash is the assets account. Since, the cash of the company is reducing. Hence, credit the cash account.
Decrease in the wages payable
Date | Account title and explanation | port ref. | Amount($) | Amount($) |
Wages payable | 9,000 | |||
Cash | 9,000 | |||
(to record the wages payable) |
Table (8)
- Wages payable is the liability account. Since wages payable reduces the equity of the company. Hence, debit the wages payable.
- Cash is the assets account. Since, the cash of the company is reducing. Hence, credit the cash account.
Decrease in the income tax payable
Date | Account title and explanation | port ref. | Amount($) | Amount($) |
Income tax payable | 400 | |||
Cash | 400 | |||
(to record the income tax payable) |
Table (9)
- Income tax payable is the liability account. Since, income tax payable is decreasing. Hence, debit the income tax payable account.
- Cash is the assets account. Since, the cash of the company is reducing. Hence, credit the cash account.
f.
Sale of the inventory on credit
Date | Account title and explanation | port ref. | Amount($) | Amount($) |
Sundry debtor | 22,700 | |||
Inventory account | 22,700 | |||
(to record the sale of the inventory) |
Table (10)
- Sundry debtor account is the assets account. Here, debtor of the company is increasing which increase the assets of the company. So, debit the sundry debtor assets account.
- Inventory is the assets account. Here, the assets of the company are decreasing which decrease the assets of the company. So, credit the inventory account.
Cash flow statement (Direct method)
Cash flow statement | Amount($) | Amount($) |
Cash flow from operating activities: | ||
Cash collected from customers | 664,000 | |
Cash paid to suppliers | (393,300) | |
Cash paid for other expense | (75,000) | |
Cash paid for income tax | (44,290) | |
Cash flow from operating activities(A) | 151,410 | |
Cash flow from investing activities: | ||
Cash received on sale of the equipment | 10,000 | |
Cash paid for new equipment | (57,600) | |
Cash flow from investing activities(B) | (47,600) | |
Cash flow from financing activities: | ||
Cash from issuance of share | 60,000 | |
cash paid on retirement | (30,000) | |
Cash paid for dividend | (90,310) | |
Cash flow from financing activities(C) | (60,310) | |
Net increase in cash | 43,500 | |
Cash and cash equivalent, December 31,2016 | 44,000 | |
Cash and cash equivalent, December 31,2017 | 87,500 |
Table (11)
Working notes:
Calculate the cash collected from the customer,
Calculate the cash paid to supplies,
Calculate the cash paid for other expenses,
Calculate the cash received on sale of the equipment,
particular | Amount(S) |
9,000 | |
Add: Depreciation for the year | 58,600 |
Less: Accumulated depreciation | (27,000) |
Depreciation on equipment sold | 40,600 |
Original cost of the equipment sold | 48,600 |
Less: Depreciation on equipment | (40,600) |
Book value of the equipment sold | 8,000 |
Add: Gain on sale | 2,000 |
Cash received on sale of equipment | 10,000 |
Table (12)
Calculate the cash dividend paid:
Cash flow statement (indirect method)
Cash flow statement | Amount($) | Amount($) |
Cash flow from operating activities: | ||
Net income | 99,510 | |
Adjustment for non cash expense | ||
Add: Depreciation | 58,600 | |
Less: Gain on sale of the machinery | (2,000) | |
Adjustment for | ||
Add: Increase in working capital | (4,700) | |
Net cash flow from operating activities | 151,410 | |
Cash flow from investing activities | ||
Cash received on sale of equipment | 10,000 | |
Cash paid for acquiring new equipment | (57,600) | |
Cash flow from investing activities | (47,600) | |
Cash flow from financing activities: | ||
Cash from issuance of share | 60,000 | |
cash paid on retirement | (30,000) | |
Cash paid for dividend | (90,310) | |
Cash flow from financing activities: | (60,310) | |
Net increase in cash | 43,500 | |
Cash and cash equivalent, December 31,2016 | 44,000 | |
Cash and cash equivalent, December 31,2017 | 87,500 |
Table (13)
Working note:
Calculate the working capital change
Particular | 2017 | 2016 | Increase/decrease |
Accounting receivable | 63,800 | 51,000 | 14,000 |
Inventory | 63,800 | 86,500 | (22,700) |
Prepaid expenses | 4,400 | 5,400 | (1,000) |
Increase(Decrease) in current assets(D) | (9,700) | ||
account payable | 25,000 | 30,000 | 5,000 |
Wages payable | 6,000 | 15,000 | (9,000) |
Income tax payable | 3,400 | 3,800 | (400) |
Increase(decrease) in current liabilities(E) | (14,400) | ||
Increase (Decrease) in working capital | 4,700 |
Table (14)
Calculate the cash received on sale of the equipment,
particular | Amount(S) |
Accumulated depreciation 2016 | 9,000 |
Add: Depreciation for the year | 58,600 |
Less: Accumulated depreciation | (27,000) |
Depreciation on equipment sold | 40,600 |
Original cost of the equipment sold | 48,600 |
Less: Depreciation on equipment | (40,600) |
Book value of the equipment sold | 8,000 |
Add: Gain on sale | 2,000 |
Cash received on sale of equipment | 10,000 |
Table (15)
Calculate the cash dividend paid,
Reconciliation of the cash flow from direct and indirect method
Cash flow statement(Indirect method) | Amount($) | Amount($) |
Cash flow from operating activities: | ||
Net income | 99,510 | |
Adjustment for non cash expense | ||
Add: Depreciation | 58,600 | |
Less: Gain on sale of the machinery | (2,000) | |
Adjustment for working capital change: | ||
Add: Increase in working capital | (4,700) | |
Net cash flow from operating activities | 151,410 | |
Cash flow statement (Direct method) | ||
Cash flow from operating activities: | ||
Cash collected from customers | 664,000 | |
Cash paid to suppliers | (393,300) | |
Cash paid for other expense | (75,000) | |
Cash paid for income tax | (44,290) | |
Cash flow from operating activities | 151,410 |
Table (16)
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