Elements And Cash Flow Classifications Of Financial Analysis

Improved Essays
Question 2

Elements and cash flow classifications of the financial statements

1. Cash paid into the business by Jay to begin operations
In the balance sheet, this transaction will be shown as the first investment put into the business by the business owner. The elements affected in this transaction will include:
Assets: Increase in Cash
Equity: Increase in Capital
The statement of cash flow will record this transaction under financing activities and shown as cash inflows for the business

2. Racks purchased to display merchandise to customers
The racks purchased to display merchandise are assets for the business and will be shown under equipment. In this transaction, assets will increase, as it is assumed that the equipment was purchased
…show more content…
The elements affected includes Asset and Expense. In the balance sheet, the cash increase due to Prepaid Rent would be recorded as an asset, however with each rent paid in advance by the business, it will be recorded as a reduction in cash.
Rent being paid in advance will be recorded as operating activities for the business in the statement of cash flows. Once rent has expired, a reduction will be incurred which is then determined as Rent Expense for the business in the income statement.

4. Streetwear items purchased from a manufacturer
In the balance sheet, Streetwear items bought for the business are recorded as Inventory, which indicates that the element for this transaction are assets. The transaction would be recorded under operating activities as cash outflow due to assumption that the items were purchased in cash

5. Amount owing to the manufacturer for merchandise purchased
In the balance sheet, this transaction will be recorded as a liability (account payable). Once the business is able to pay the amount owed to the manufacturer, the cash flow statement will record this transaction under operating activities and as cash
…show more content…
7. Cash withdrawn by Jay for personal use.
In this transaction, drawings will reduce cash and equity, which indicates that the elements affected are assets and equity. The statement of cash flows will record this transaction under financing activities and as cash outflows for the business

8. Wages paid to casual employee
In this transaction, wages expense will reduce cash balance, which indicates that the element affected is assets. Wages expense will be recorded in the income statement and only appears in the balance sheet once deducting the amount in profit, which additionally also reduces equity.
This transaction will be recorded under operating activities and cash outflows in the cash flows statement.

9. Amount borrowed long-term from the bank
In the balance sheet, a long-term loan is considered as a liability incurred onto the business. However, the resulting cash injection into the business is recorded as an asset due to the increase in cash. This indicates that the elements affected for this transaction includes assets and liability.
In the statement of cash flows, the cash received from the loan will be recorded under financing activities and as cash inflows for the business

10. Cash sales of merchandise to

Related Documents

  • Improved Essays

    The study will be anchored on the following theories: 2.2.1 Cash Conversion Cycle Theory Cash conversion theory was propounded by Blinder and Maccini (2001), cash conversion cycle theory is the time it takes a company to convert its resource inputs into cash. It evaluates how effectively a firm is managing its working capital. In most cases, a company acquires inventory on credit, which results in accounts payable. A firm can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the firm pays the accounts payable and collects accounts receivable.…

    • 888 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Solvency ratios is used to measure the ability of a company to meet its long-term debts. More importantly it is used to determine whether a company’s cash flow is sufficient to meet short and long-term liabilities. The financial ratios that we used for Red soda vs Blue soda was debt to asset ratio, times interest earned, cash debt coverage and free cash flow. First, debt to asset ratio is an indicator of financial leverage. The ratio is calculated by dividing total liabilities by its total assets.…

    • 1164 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    With this accounting equation, it is presented to give you an idea of a double entry accounting. And when a company borrows from the bank, a company 's cash account can increase and its liability account loans payable will increase. If the company pays for advertisement their cash flow will decrease but the account advertisements expenses can increase. Connections between an income statement and Balance sheet Each of the financial statements is on separate sheets for the annual financial report, here is a quick explanation how they working from the top to the bottom. Here is a summary which explains the lines, looking at the top and going down:  Sales acquiring expense for sales it requires businesses to maintain working balance.…

    • 1042 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    Overall, resulting in losing money due to the fact that you have to pay the money that you borrowed, plus the interest fee the bank decides to charge. Moreover, I decided to make a comparison between The Most Dangerous Game by Connell and the dangerous game that were lured into when we take out credit cards and loans. Likewise, credit cards and debit cards are extremely distinct because credit cards charge an interest rate or fee, plus your purchase or borrowed fee, like loans. In contrast to debit cards that directly transact money from your bank account to pay for your…

    • 1023 Words
    • 5 Pages
    Improved Essays
  • Superior Essays

    b) Earning power- It is the measure of business performance ignoring interest charged and the tax paid. It shows whether firm is worthy for investment or not B) Liquidity Ratio- It is the ability of firm to meet its short term obligation in short run and it shows the relationship between current asset and current liability. It shows the ready cash that firm has. Under this we have Acid-test ratios and Current ratio a) Acid-test ratio- It shows the firms working capital that is tied up in inventory or how much money is locked in inventory b) Current ratio- It shows the firms ability to meet its current ability. It gives an idea of how much current asset is required to cover the current liability that firm…

    • 1288 Words
    • 6 Pages
    Superior Essays
  • Great Essays

    2. Statement of changes in Financial position It includes a Funds Flow Statement and a Cash Flow Statement. Funds flow statement shows the sources and applications of cash and cash equivalents during a period. Objectives of preparing a Financial Statements (i) To present a true and fair view of the financial performance (i.e. profit/ loss) of the business.…

    • 1121 Words
    • 5 Pages
    Great Essays
  • Improved Essays

    Personal Finance Tool

    • 1060 Words
    • 5 Pages

    Just like a business, long term assets can be sold to add cash to the short term assets, and long term liabilities can be retired quicker with cuts in short term liabilities. Income Statement: To begin the income statement you will need to classify and notate all of your income and expenses. Your income may come from multiple sources or only one, but it is still just income. Your expenses can be either “fixed” or “variable.” Fixed expenses are those that do not change no matter how much you use them. Variable expenses are those that increase or decrease with how much you use them.…

    • 1060 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    From the company's viewpoint, the equity holders' compulsory amount of return is a cost, because if the firm does not bring this expected return, stockholders may sell their shares, producing the stock price to drop. The cost of equity is fundamentally what it costs the firm to maintain a share price that is suitable to…

    • 1124 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    Balance Sheet By definition, a balance sheet is a statement of an organization showing its financial position during a specific date or often at the end of every year. As such, it analyzes the assets, credits, and equity of the business to give the manager an overview aspect of the business. The major essence of a balance sheet is that it gives the manager or investors an idea of the company’s strengths and weak points and the amount invested by shareholders. Also, the main ideology driving the balance sheet is that it denotes the acquisition of the assets through making payment either by borrowing cash or acquiring money from investors (Fridson & Alvarez, 2011). This aspect brings out the overall idea of wanting to monitor the company’s financial…

    • 711 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    CASH FLOW ANALYSIS The calculated missing items for The Nice Suit Dry Cleaning Company’s statement of cash flow are presented as highlighted figures in Table 1. Line A that pertains to Cash paid out to suppliers and employees is a cash outflow transaction for operating activities that is allotted for the materials required for daily operation and salaries to employees, thus, this is expected to be a negative amount. To obtain this value, subtract the rest of the items under the operating activities including the given Net cash provided by operating activities from Cash received from customers. Line B is the Net cash used in investing activities under the investing activities. This item is the resulting value when all investing activities are accounted.…

    • 770 Words
    • 4 Pages
    Improved Essays