Paul was unemployed and unable to find a job. He therefore decided to embark on a business venture. With Christmas approaching, he decided to buy gift wrapping paper from a local supplier and to sell it on the corner of his local high street. He felt that the price of wrapping paper in the high street shops was unreasonably high and that this provided him with a useful business opportunity.

He began the venture with £400 of his own money, in cash. On Monday, Paul’s first day of trading, he bought wrapping paper for £400 and sold three-quarters of it for £450 cash.

What cash movements took place in Paul’s business during Monday?

For Monday, a statement of cash flows showing the cash movements (that is, cash in and cash out) for the day can be prepared as follows:

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Statement of cash flows for Monday Cash introduced (by Paul) Cash from sales of wrapping paper Cash paid to buy wrapping paper Closing balance of cash £ 400 450 (400) 450 The statement shows that Paul placed £400 cash into the business. The business received £450 cash from customers but paid £400 cash to buy the wrapping paper. This left £450 of cash by Monday even- ing. Note that we are taking the standard approach found in financial statements of showing figures to be deducted (in this case the £400 paid out) in brackets. We shall take this approach consistently throughout the chapters dealing with financial statements.