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Fred Gowen opened Gowen Retail Sales as a sole proprietorship and recorded the following transactions during his first month in business: Purchased $50,000 of fixed
Fred Gowen opened Gowen Retail Sales as a sole proprietorship and recorded the following transactions during his first month in business:
- Purchased $50,000 of fixed assets, putting 20% down and borrowing the remainder.
- Sold 1,000 units of product at an average price of $45 each. Half of the sales were on credit, none of which had been collected as of the end of the month.
- Recorded cost of goods sold of $21,000 related to the above sales.
- Purchased $32,000 worth of inventory and paid cash.
- Incurred other expenses (including the interest from the loan) of $5,000, all of which were paid in cash.
- Fred's tax rate is 40%. (Taxes will be paid in a subsequent period.)
Cash Flows | |
Purchase of Assets | $ |
Proceeds from Loan | $ |
Cash from Sales | $ |
Purchase of Inventory | $ |
Other Expenses | $ |
Net Cash Flow | $ |
- What will the business report as net income for its first month of business? (Hint: Write out an income statement and enter revenue, cost, and expense. Then calculate tax and net income.) $
- List the flows of cash in and out of the business during the month. Show inflows as positives and outflows as negatives (using sign "-"). Sum to arrive at a "Net Cash Flow" figure.
- Should Fred pay more attention to net income or cash flow?
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