Your friend Basil Nutt has come to you for advice. He says: “I don’t understand it. My company, Nutts and More, had a net income of $4,300 in 2000, so | expected the balance in the company’s cash account to go up. But the cash went down from $8,000 to $600!

The company is almost broke, and it didn’t buy any equipment, and | didn’t make any withdrawals. The company used its cash only for operating activities. Help me figure out what is going on.” :

You study the company’s accounting records and find that it prepared an income statement and a balance sheet. The company’s 2000 income statement is as follows:

Cost of goods sold... BA el ae ee Gross PrOfit.........sssscsssecssesssesssessnsesssccesscesscessensescnscrsncenscenscenscsnssens Salaries expense .............

Depreciation expense Other expenses (all cash)...

Total operating expenses Net: InGonnne ssscsatte-caccssessrcessssesccneseerege caasasrdasencecertpcacacaccoreacaetecgees You determine that the income statement is correct. You also find that during 2000, the company’s accounts receivable increased by $6,300, its inventory increased by $7,500, its accounts payable decreased by $3,000, and its salaries payable increased by $1,000.

Required: Prepare for Basil Nutt a report that explains why his company’s cash decreased during 2000.  plo47