Question

Question #6.3: For each of the following independent cases:

a) Record the transaction using the accounting equation. Be specific about account names & $ amounts.

b) Indicate the effect of each transaction on the Statement of Cash Flow (SCF). Specify which section(s) of the SCF the transaction affects and in what direction. If there is no effect on the SCF, write “no effect”.

Sold merchandize that has a cost of $28,000 for $35,000. The customer promised to pay the full amount at the end of the coming month.

Accounting Equation

Statement of Cash Flow

Answer 1

1. Accounting Equation :

Balance Sheet

Income Statement

Total Assets

=

Total Liabilities and Equity

Revenue

-

Expenses

=

Profit

Inventory

+

Accounts Receivable

=

Liabilities

+

Stockholders' Equity

Sales

-

Cost of Goods Sold

=

Profit

-28,000

+

35,000

=

-

+

7,000

35,000

-

28,000

=

7,000

7,000

=

7,000

7,000

=

7,000

2. Statement of Cash Flows

The ultimate impact on cash flows will be Nil. The transaction will have some impact within the items of cash flow from operating activities, however the net impact will be Nil as shown below :

Cash flow from Operating Activities

Net Profit before Tax

7,000

Less : Inc in AR

-35,000

Add : Inc in Inventory

28,000

Net Cash flow

-