Comparing Income and Cash Flows from Operations (A Challenging Exercise)

Paul's Painters, a service organization, prepared the following special report for the month of January 2012 :

Required:

1.

The owner (who knows little about the financial part of the business) asked you to compute the amount by which cash had increased in January 2012 from the operations of the company. You decided to prepare a detailed report for the owner with the following major captions: Cash inflows (collections), Cash outflows (payments), and the difference-Net increase (or decrease) in cash.

2. Reconcile the difference-net increase (or decrease) in cash-you computed in (1) with the income for January 2012 by filling in the following chart.

Transcribed Image Text:

Service revenue Service Revenue, Expenses, and Profit Cash services (per cash register tape) Credit services (per charge bills; not yet collected by end of January) Expenses $105,000 30,500 $135,500 Salaries and wages expense (paid by cheque) $ 50,000 Salaries for January not yet paid 3,000 Supplies used (taken from stock, purchased 2,000 for cash during December) Estimated cost of using company-owned truck for the month (called depreciation) Other expenses (paid by cheque) Profit before income tax Income tax expense (not yet paid) Profit for January 500 26,000 81,500 54.000 13,500 $ 40,500