Question

. In the last month, Cash Is King, Inc. had net income of $10,000, an increase in a/r of $5,000, a decrease in a/p of $5,000, their inventories rose by $7500, they purchased computers worth $10,000, sold stock worth $100,000, and paid down their bank loans by $50,000. What was their cash flow from each of the following areas:

a. Operations

b. Investing Activities

c. Financing Activities

d. What was their total cash flow for the period?

Answer 1

A	B	C	D	E	F	G	H	I	J
2		a)
3		The operating section shows the cash receipt and payment for the normal course of business.
4		Increase in current assets decreases the cash in hand and increase in liabilities increases the cash in hand.
5		Cash Flows from operating activities
6		Net Income		$10,000
7		Adjustments to reconcile Net Income to Net cash provided by the operating activities
8		(Increase) decrease in accounts receivable	($5,000)
9		(Increase) decrease in Inventories	($7,500)
10		Increase (decrease) in Accounts Payables	($5,000)
11		Net cash provided by operating activity		($7,500)	=E6+SUM(D8:D10)
12
13		Hence Cash Flow from Operations	($7,500)
14
15		b)
16		Investing section includes the effect of purchase and disposal of long-term fixed asset and investments.
17		Cash Flows from investing activities
18		Purchase of Equipment using Cash	($10,000)
19		Net cash provided by investing activity		($10,000)
20
21		Hence Cash Flow from investing activities	($10,000)
22
23		c)
24
25		Financing section records the cash receipt or disbursement due to financial activities
26		such as stocks issue, dividend payment, Bond issue, Bond payment etc.
27		Cash Flows from financing activities
28		Proceeds from issue of shares	$100,000
29		Repayment of loan	($50,000)
30		Net cash provided by Financing Activity		$50,000
31
32		Hence Cash Flow from financing activities	$50,000
33
34		d)
35		Total Cash Flow for the period	=Sum of Cash Flows from Operating, Investing and financing activities
36			=-$7,500-$10,000+$50,000
37			$32,500	=D13+D21+E30
38
39		Total Cash Flow for the period	$32,500
40