To help you understand the importance of cash flows in the operation of a small business. Think

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To help you understand the importance of cash flows in the operation of a small business.

Think about operating a business like the Millers did when they created the Bold City Brewery. Your business is called BCS Consultants, Inc. You just received your year-end financial statements from your CPA and you notice one very disturbing item. The net income from your income statement shows $36,000! Your very first thought is ?where is it?? Then you look at your cash balance and see that it decreased $8,000 from last year to this year. You?re thinking there has to be something wrong here. So, you call up your CPA and ask for a meeting to discuss this obvious error. After all, how can you possibly have a positive net income and have your cash balance decrease?

At the meeting, the CPA lays out the financial statements in front of you and begins to explain how this would have happened. Following are a condensed income statement, statement of retained earnings, and balance sheet:

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Requirement

By looking at the three financial statements, can you anticipate what the CPA is going to tell you about why the cash decreased even though you had net income for the year? What changed from 2017 to 2018? Are transactions that affect the income statement the only transactions that affect your cash balance?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Financial Accounting

ISBN: 978-0134727790

5th edition

Authors: Robert Kemp, Jeffrey Waybright

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