Question

Reconciling Net Income and Cash Flow from Operations Using FSET

For fiscal year 2015, Beyer GMBH had the following summary information available concerning its operating activities. The company had no investing or financing activities this year.

1. Sales of merchandise to customers on credit	€507,400
2. Sales of merchandise to customers for cash	91,500
3. Cost of merchandise sold on credit	320,100
4. Cost of merchandise sold for cash	63,400
5. Purchases of merchandise from suppliers on credit	351,600
6. Purchases of merchandise from suppliers for cash	47,700
7. Collections from customers on accounts receivable	483,400
8. Cash payments to suppliers on accounts payable	340,200
9. Operating expenses (all paid in cash)	172,300

Required

a. Enter the items above into the Financial Statement Effects Template. Under noncash assets, use two separate columns for accounts receivable and inventories. Calculate the totals for each column.

	Balance Sheet											Income Statement
Transaction	Cash Asset	+	Accounts Receivable	+	Inventories	=	Accounts Payable	+	Cont’d Capital	+	Earned Capital	Revenue	-	Expenses	=	Net Income
1	Answer	+	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer
2	Answer	+	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer
3	Answer	+	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer
4	Answer	+	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer
5	Answer	+	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer
6	Answer	+	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer
7	Answer	+	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer
8	Answer	+	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer
9	Answer	+	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer
Totals	Answer	+	Answer	+	Answer	=	Answer	+	Answer	+	Answer	Answer	-	Answer	=	Answer

b. What was the company’s net income for the year?
€Answer

What was the cash flow from operating activities? (Use the direct method.)
€Answer

c. Indicate the direction and amounts by which each of the following accounts changed during the year. If the account decreased, enter as a negative number.

1. Accounts receivable	€Answer
2. Merchandise inventory	€Answer
3. Accounts payable	€Answer

d. Using your results above, prepare the operating activities section of the statement of cash flows using the indirect format.

Net income	€Answer
Change in accounts receivable	€Answer
Change in inventories	€Answer
Change in accounts payable	€Answer
Cash flow from operating activities	€Answer

Answer 1

Decrease in account balance indicate with minus sign
	Balance Sheet											Income Statement
Transaction	Cash Asset	+	Accounts Receivable	+	Inventories	=	Accounts Payable	+	Cont’d Capital	+	Earned Capital	Revenue	-	Expenses	=	Net Income
1		+	€ 507,400	+		=		+		+	507400	€ 507,400	-		=	€ 507,400
2	91,500	+		+		=		+		+	91500	91,500	-		=	€ 91,500
3		+		+	-320,100	=		+		+	-320100		-	320,100	=	-€ 320,100
4		+		+	-63,400	=		+		+	-63400		-	63,400	=	-€ 63,400
5		+		+	351,600	=	351,600	+		+	0		-		=	€ 0
6	-47,700	+		+	47,700	=		+		+	0		-		=	€ 0
7	483,400	+	-483,400	+		=		+		+	0		-		=	€ 0
8	-340,200	+		+		=	-340,200	+		+	0		-		=	€ 0
9	-172,300	+		+		=		+		+	-172300		-	172,300	=	-€ 172,300
Totals	14700	+	24000	+	15800	=	11400	+	0	+	43100	598900	-	555800	=	€ 43,100

Revenue	598900
Less: expense	555800
Company’s net income for the year		€ 43,100
Cash flow from operating activities
Cash collected from customer (91500+483400)		€ 574,900
Less: cash paid to vendors (means account payable) (47700+340200)		€ 387,900
Less: cash paid for operating expense		€ 172,300
Cash flow from operating activities		€ 14,700
1. Accounts receivable		24000
2. Merchandise inventory		15800
3. Accounts payable		11400
Net income		€ 43,100
Increase in accounts receivable (less)		-24000
Increase in inventories (less)		-15800
Increase in accounts payable (add)		11400
Cash flow from operating activities		€ 14,700