The financial statements for the business of Trinh’s Nail Supplies for the past two years are presented below.

Additional information

1. All purchases and sales of inventories are on credit. All purchases of office supplies are for cash.

2. The bank overdraft is considered to be part of the entity’s cash management function.

3. During the year ended 30 June 2020, the owner, Trinh, withdrew $12 800 in cash for personal use.

4. The entity sold some fixtures for $1200 cash during the current year. These fixtures initially cost $4200 and had been written down to a carrying amount at the date of sale of $2000.

5. Depreciation of fixtures has been included in ‘other expenses’ for the year ended 30 June 2020. All remaining other expenses were paid in cash.

Required

(a) Prepare the statement of cash flows for Trinh’s Nail Supplies for the year ended 30 June 2020, using the direct method.

(b) Comment on the cash flow position of the entity as shown in the statement of cash flows.

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Sales Cost of sales GROSS PROFIT Interest income Loss on sale of fixtures Office supplies used Other expenses PROFIT TRINH'S NAIL SUPPLIES Comparative Income Statements for the year ended 30 June 2019 $400,000 350 000 2020 $500000 458 000 42000 2000 50000 1000 800 51000 43200 10000 11000 29000 29000 39 000 40000 $ 12000 $ 3200