Question

Please create an indirect cash flow statement and cash flow statement plese.

a. Person 2 became an owner by investing $10,000 cash and $5,000 of equipment. (Note: Owners may put cash or other valuables into a firm to add to the value of their Paid in Capital). b. Better Outcomes paid $600 cash for electricity to be used in July. (Hint: use“Pre-paid Expense"). c. Better Outcomes paid $500 cash for June rent. d. The company purchased $1,200 of equipment for its offices, paid in cash. e. Received cash of $300, for services previously provided and invoiced. f. Better Outcomes provided $3,000 of Rehab-services "on account" ("on account" in this case means "and invoiced its customers for this amount"). g. The company realized that $1,000 worth of its net PPE was left in the rain and damaged. The firm believes it can sell the damaged net PPE (as "Misc Asset, PPE") for $400. h. The company accrued $500 of salary expense payable to an employee for working during the month. i. The company borrowed additional $500 from the bank (due in 3 years). j. The company paid $900 cash dividends (total) to its owners. k. The company recognized $1,000 wear of all its net PPE during the month of June.

Answer 1

Summary Income statement
	$
sales	3000
less: Operating Expenses
rent	500
loss on sale of PPE	600
salary	500
depreciation	1000
Net income	400

Cash Flow Statement - Indirect method
Cash flow from Operating Activities	$	$
Net Income		400
Adjustments
Depreciation	1000
Loss on Sale of PPE	600	1600
Increase in Salary payable	500
Increase in Prepaid expenses	-600
Decrease in Accounts receivables (Services rendered previously)	300
Increase in Accounts receivables (rehab service on account)	-3000	-2800
Cash generated from operations (A)		-800
Cash flow from Investing Activities
Purchase of PPE	-1200
proceeds from sale of damaged equipment	400
Cash generated from Investing (B)		-800
Cash flow from Financing Activities
Cash Proceeds from capital	10000
Proceeds from Bank Loan	500
Dividends paid	-900
Cash generated from Financing Activities ( C )		9600
Net Increase in Cash and Cash Equivalents		8000
Cash and Cash Equivalents at the beginning period		0
Cash and Cash Equivalents at the End period		8000

Cash Flow Statement - Direct method
Cash flow from Operating Activities	$	$
Cash receipts from customers	300
Paid to Electricity	-600
Rent	-500
Cash generated from operations (A)		-800
Cash flow from Investing Activities
Purchase of PPE	-1200
proceeds from sale of damaged equipment	400
Cash generated from Investing (B)		-800
Cash flow from Financing Activities
Proceeds from capital
cash	10000
Proceeds from Bank Loan	500
Dividends paid	-900
Cash generated from Financing Activities ( C )		9600
Net Increase in Cash and Cash Equivalents		8000
(+)Cash and Cash Equivalents at the beginning period		0
Cash and Cash Equivalents at the End period		8000

Notes:

1. Person 2 became a owner by investing cash and also Equipment into the firm , anything other than cash is not be

entered in Cash Flow statement. Therefore, Only Cash Investment of $10000 is taken not Equipment worth $5000

2. Prepaid expenses of electricity, cash received fro service previously rendered, Salary payable but not paid

and rehab service rendered are treated as current assets and current liability in Indirect method.

Hence changes in current assets and current liability is reported in cash flow statement under indirect method

3. The company realized PPE worth $1000 which was damaged in rain for $400 Only thereby incurring loss of $600.