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Marvin Company

Cash opening balance sales COGS purchases sales COGS sales COGS wages land purchase insurance policy insurance expense closing balances 25000 12000 receivables 0 pre-payments 0 Inventory 50000 -7000 7000 2500 -1500 3400 -2000 -4200 -20000 -2800 20000 2800 -117 3400 2683 46500 20000 0 7000 20000 0 55000 Income Statement Sales less COGS Gross Profit less operating Expenses: Wages Insurance Operating Profit 17900 -10500 7400 -117 3083 PPE 0 Payables 0 borrowings 20000 Capital retained earnings 55000 0 12000 -7000 2500 -1500 3400 -2000 -4200

7000

12500

Marvin Co Balance Sheet as at 31st Jan 20xx Assets Cash receivables pre-payments Inventory PPE Total Assets = 12500 3400 2683 46500 20000 85083 Liabilities & Equity Payables 7000 borrowings 20000 Total Liabilities Capital 55000 retained earnings 3083 Total Equity total Equity & Liabilities

27000

58083 85083

-4200 -117

-4317 3083

cash Flow Statement (Direct Method) Operating cash flows cash from customers cash payments (wages & ins) cash flows from operations Investing cash flows land purchase Net cash flows = add opening cash balance Equals closing cash balance

Cash Flow Statement (Indirect Method - start with Income) Profit increase in receivables increase in pre-payments decrease in inventory increase in payables cash flows from operations 3083 remember, profit is not cash! -3400 higher receivables imply an outflow of cash -2683 higher pre-payments imply an outflow of cash 3500 less inventory implies an inflow of cash 7000 increase in payables implies an increase in cash 7500 This produces the same cash flows from operations as the direct method. Most firms use this method because it reconciles the Income statement with the cash flow from operations. Note the remainder of the cash flow statement (the investing and financing sections) will be identical under both methods.

14500 -7000 7500

-20000 -12500 25000 12500

Marvin Company

Assets
opening balance sales COGS purchases sales COGS sales COGS wages land purchase insurance policy insurance expense closing balances Cash receivables pre-payments Inventory 25000 50000 12000 -7000 7000 2500 -1500 3400 -2000 -4200 -20000 -2800 2800 PPE 0

20000

12500

3400

2800

46500

20000

Marvin Co Balance Sheet as at 31st Jan 20xx Assets 12500 3400 2800 46500 20000 85200 Liabilities & Equity Payables 7000 borrowings 20000 Total Liabilities Capital 55000 retained earnings 3200 Total Equity total Equity & Liabilities

Cash receivables pre-payments Inventory PPE Total Assets =

27000

58200 85200

cash Flow Statement Operating cash flows cash from customers payments to suppliers cash flows from operations Investing cash flows land purchase Net cash flows = add opening cash balance Equals closing cash balance

14500 -7000 7500

-20000 -12500 25000 12500

Liabilities
Payables borrowings 20000

Owners Equity
Capital retained earnings 55000 12000 -7000 2500 -1500 3400 -2000 -4200 0 0

7000

7000

20000

55000 Income Statement Sales less COGS Gross Profit less operating Expenses: Wages Insurance Operating Profit

3200

17900 -10500

-4200 0

7400

-4200 3200

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