We made a profit of $20,150, so why is there only $9,850 in the bank? exclaimed Mr Adams, the manager of Madison Gifts Pty Ltd.

5b) Explain to Mr Adams the relationship between profit and cash flow to help him understand why there is a difference between profit and cash in the bank. Provide two specific reasons why Maddison Gifts Pty Ltds profit for the year ended 30 June 2021 is greater than its bank balance.

Statement of Financial Position As at 30 June 2020 Current assets Bank Accounts receivable Inventory 8,400 14,400 23,000 9,800 2,200 12,000 Current liabilities Accounts payable Accrued expenses Non-current liabilities Loan Total liabilities 45,800 25,000 37,000 Non-current assets Furniture & Fittings Accum. depreciation 48,000 (11,000) 37,000 Owners' Equity Capital Retailed Earnings Total liabilities & Owner's equity 35,800 10,000 82,800 Total assets 82,800 Madison Gifts Pty Ltd Statement of Financial Performance For the year ending 30 June 2021 19,200 67,000 86,200 (42,400) 43,800 Sales: Cash Credit Less: Cost of goods sold Gross profit Less operating expenses Wages expense Depreciation Administration expenses Interest expense Net profit (7,900) (12,000) (3,300) (450) (23,650) 20,150 Madison Gifts Pty Ltd Statement of Financial Position As at 30 June 2021 Current assets Bank Accounts receivable Inventory 9,850 16,000 19,600 Current liabilities Accounts payable Accrued expenses 8,700 2.800 11,500 45,450 Non-current assets Furniture & Fittings Accum. depreciation Non-current liabilities Loan Total liabilities 19.000 30,500 64,000 (23,000) 41,000 Owners' Equity Capital 35,800 Retained Earnings 20,150 Total Owners' equity Total liabilities & Owner's equity 55,950 86,450 Total assets 86,450 Additional information: All purchases of stock were on credit. No equipment was sold during the year. Accrued expenses relate to wages. 5a) Prepare a classified Statement of Cash Flows for the year ending 30 June 2021. Show all workings