Use the following information and prepare an Income Statement (to calculate the net profit) and a Statement of Cash Flows (identify each payment separately) for the month. Identify 2 causes for the difference between net profit and cash flow from operating activities. Describe what the Cash Flow Statement reveals.

Bank balance beginning of month	15,600	Inventory purchased for cash	28,000
Bank balance, end of month	19,800	Miscellaneous expenses paid	8,000
Cash drawings	30,000	Payment on accounts payable	44,000
Cash sales	72,000	Proceeds from bank loan	93,000
Collections from accounts receivable	40,000	Proceeds from sale of motor vehicle	12,000
Cost of sales	69,000	Purchase of motor vehicle for cash	68,000
Credit sales	58,000	Rent expense	800
Depreciation	3,500	Rent paid in advance for the next 6 months	4,800
		Wages paid	30,000

2. Identify 2 causes for the difference between net profit and cash flow from operating activities.

4. What do the 3 sections of the Cash Flow Statement reveal about the firm?

For each of the 3 activities:

• state whether the flow is positive or negative;
• describe in words what the net cash flow for each of the 3 activities indicate and
• state whether that is a good sign or a not good sign for the business.

Operating activities:

Investing activities:

Financing activities:

Opening Balance - 15,600 Cash Flow from operating activities : Cash Sales. 72,000 Collections from account receivables 40,000 Inventory Purchase. (28,000) Miscellaneous expenses paid. (8000) Payment of Account payable. (44000) Rent paid in advance for six months (4800) Wages paid. (30000) Drawings. (30000) Cash Flow from financing activities : Proceeds from bank loan. 93,000 Cash Flow from investing activities : Proceeds from sale of motor vehicle 12,000 Purchase of motor vehicle. (68,000) increase in Balance - 4,200 Closing Balance - 19,800