Your friend Basil Nutt has come to you for advice. He says, 'I don't understand it. My business, Nutts and More, had a net income of \(\$ 4300\) in \(20 \mathrm{X} 2\) so I expected the balance in the business' cash account to go up. But the cash went down from \(\$ 8000\) to \(\$ 800\) ! The business is almost broke, and it didn't buy any equipment, and I didn't make any withdrawals. The business used its cash only for operating activities. Help me figure out what is going on'.

You study the business' accounting records and find that it prepared an income statement and a balance sheet. The business' \(20 \mathrm{X} 2\) income statement follows.

You determine that the income statement is correct. You also find that during 20X2 the business' accounts receivable increased by \(\$ 6300\), its inventory increased by \(\$ 7300\), its accounts payable decreased by \(\$ 3000\) and its salaries payable increased by \(\$ 1000\).
Required:
Prepare for Basil Nutt a report (using the direct method) that explains why his business' cash decreased during 20X2.

Transcribed Image Text:

Sales Cost of goods sold Gross profit Salaries expense Depreciation expense Other expenses (all cash) Total operating expenses Net Income $18 000 4100 5900 $ 72 300 (40 000) $ 32 300 (28 000) $ 4300