Question

The cash flows shown below were extracted from the accounts of Jason Taylor, a music shop owner. Repayment of loan $390 000 Sale of property 390 000 Interest received 1 560 Payment to employees 78 000 Receipts from customers 273 000 Expenses paid 23 400 Computer equipment purchase 23 400 GST paid 780 Payments to suppliers 156 000 Income taxes paid 3 120 Beginning cash balance 7 800 A. Prepare a statement of cash flows using the direct method. B. Outline some cash flow warning signals.

Answer 1

    Jason Taylor

Statement of cash flows using the direct method

	$	$
Cash flow from operating activities
Receipts from customers		273 000
Less: Cash Paid for :
Payments to suppliers	156,000
Expenses paid	23,400
Payment to employees	78,000
Interest received	(1,560)
GST paid	780
Income taxes paid	3,120	(259,740)
Net Cash flow from operating activities		13,260
Cash flow from Investing activities
Sale of property	390 000
Computer equipment purchase	(23,400)
Net Cash flow from Investing activities		366,600
Cash flow from financing activities
Repayment of loan		(390,000)
Net decrease in cash		(10,140)
Beginning cash balance		7,800
Ending cash balance		(2,340)

b) There is a less amount of operating cash flow the company should maintain high amount of operating cash flow. There is good amount of cash inflow in Investing activities , but there is high amount of cash outflow from financing activities. This lead to company's ending cash balance become negative. There is no cash available to fulfill the daily needs of the organization.