Cash Flow Statement Exercise 2

1. The following is the cash account of Los Huevos Ltd. for the years 2014 and 2015: Cash a/c

Jan 1 14 Balance $2400Mar 11 Sales $35000 Mar 29 Debtor $24500 Apr 8 Sales $12000 May 14 Capital $5000 Jul 3 Debtors $16250 Aug 16 Computers $9000 Oct 31 Rent revenue $4000 Nov 27 Loan $11400

Dec 31 Balance $12720 $132270

Feb 22 Drawings $7500Mar 14 Accrued $2970 AdvertisingApr 20 Computers $25500May 10 Inventory $32300May 25 Office Exp. $4850Jun 11 Creditors $23900Aug 7 Salary $16170Sept 30 Sales Return $1960Nov 1 Furnitures $7200Dec 16 Inventory $9920 $132270

Cash a/cJan 9 Bank Loan $20000 Feb 13 Rent Revenue $3500 Mar 20 Sales $36000 Apr 17 Debtors $12700 May 8 Debtors $8280 Jun 6 Machinery $19000 Jul 14 Inventory $1300 Aug 12 Accrued Rent $500Sept 2 Sales $27500Nov 18 Inventory $670Dec 31 Balance $4200 $133650

Jan 1 15 Balance $12720 Feb 14 Inventory $37820Mar 23 Machinery $36000Apr 12 Creditors $10200May 18 Sales Return $850Jul 4 Inventory $9400Aug 26 Interest $1100Sept 29 Salary $18860Oct 1 4 Drawings $5200Nov 25 Drawings $1500 ______ $133650

a) Prepare one cash flow statement for the business for each year.b) Comment on the cash balance and net cash flows for both 2013 and 2014. c) Suggest 3 ways to improve the cash flow of Los Huevos Ltd in year 2014.

2. Explain the 3 main purposes of a cash flow statement.

3. It is said that a business can show a profit during an accounting period but experience negative net cash flow at the same time. How is this possible? Explain. Discuss also the opposite situation (i.e. showing a loss but having a positive net cash flow).

Answer:b. During the year 2014 cash had decrease from $2400 to negative $12720. This is mainly due to the negative net cash flow for investing and operating.

While in the year 2015 cash had increasing from -$12720 to -$4200. The main reason is positive net cash flow for operating $12220 and financial 17300 when two of this combine together the amount is more than the negative net cash flow for financial.

c. cut down salary by firing extra worker , use the mechanary longer for another year any estra mechinary that we not using sell it. Reduce drawing

3.i. The business can generate positive cash flow.ii. It has enough cash to service debts.iii. It has enoug cash to expand its operation.

4. – spend a lot money buying mechinary - making profit 5 million used it to buy mechinary