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Cash Flow-Introduction-Example
Cash Flow-Introduction-Example
Using the opening balance sheet for each day and information provided for each day:
- Prepare the balance sheet of Mr. XYZ at the end of each day and
- Prepare the income statement of Mr. XYZ for each day
- Calculate the change in cash balance
- Calculate the difference between change in cash balance and net profit
- Explain the reason for the difference in cash balance and net profit (if any)
Note: (a), (b) and (c) are solved for your convenience.
a) Mr. XYZ used to sell toys in the daily market. On 31 December he had the following asset
balances: Inventory: 500; Bicycle: 300; Cash: 200. He did not have any liabilities and his capital
was 1000.
b) On January 1, he bought inventory worth 300. He sold inventory worth 300 for 500. All
transactions were on cash basis.
c) On January 2, he bought inventory worth 400. He sold inventory worth 300 for 500. All
transactions were on cash basis.
d) On January 3, he sold all his opening inventory for Rs. 1000 on cash basis.
e) On January 4, he bought inventory worth 200. He sold them for 400. While all the purchases were
on cash all the sales were on credit.
f) On January 5, he collected cash from the credit customers whom he had sold inventory on credit
on January 4. There were no other purchase or sales.
g) On 6 January, he purchased inventory worth 200 on credit. He sold them for 350 on cash basis.
h) On 7 January, he purchased inventory worth 500 for cash. He sold them for 800 on cash basis. He
also paid the opening accounts payable.
i) On 8 January, he bought goods worth 400 for cash. He sold them for 600. He realized that the
value of his bicycle has reduced by 20 and therefore depreciated his bicycle by 20.
k) Relate your learnings from the exercise to the figure given in illustration 11-4 of the text book:
1
Balance Sheet of XYZ as on and income statement for
Particulars 31-Dec 1-Jan 2-Jan 3-Jan 4-Jan 5-Jan 6-Jan 7-Jan 8-Jan 9-Jan
Assets
Cash 200 400 500
Inventory 500 500 600
Bicycle (net of depreciation) 300 300 300
Accounts receivable
Revenues
Sales revenue 500 500
No Inc. in
Reasons for difference difference inventory