Accounting Business Reporting for Decision Making

CHAPTER 7 Statement of cash flows 275

ILLUSTRATIVE EXAMPLE 7.11

Statement of cash flows

Teresa’s Carpets and Rugs

Statement of cash flows for the month ended 30 April 2016

Cash inflows

Proceeds from loan

Proceeds from sales

Proceeds from capital (equity) contributed

$ 50 000

40 000

20 000

Total cash inflows 110 000

Cash outflows

Purchase of shop fittings

Lease payment

Payment for monthly lease expense

Payment for interest

20 000

10 000

1 000

250

Total cash outflows $ 31 250

Net cash flow 78 750

Beginning cash balance —

Ending cash balance $ 78 750

Note that we determined the profit in two lines above. With only one month of trading, this was

simple enough to do as it is easy to remember the amounts and the revenue and expenses they represent.

However, as time moves on and the business incurs more and varied income and expenses, it is best to

determine the profit or loss as per the statement of profit or loss in illustrative example 7.12.

ILLUSTRATIVE EXAMPLE 7.12

Statement of profit or loss

Teresa’s Carpets and Rugs

Statement of profit or loss for the month ended 30 April 2016

Sales

Less: Cost of sales

Beginning inventory

Add: Purchases

Less: Ending inventory

$

(

—

35 000

15 000)

$40 000

20 000

Gross profit

Less: Other expenses

Lease payment

Depreciation

Interest expense

Lease amortisation

1 000

334

250

167

20 000

1 751

Profit $18 249

Note the difference between the statement of cash flows and the statement of profit or loss. Firstly, the

statement of cash flows includes the total cash outlay for the lease and the shop fittings, while the state-

ment of profit or loss only includes that portion of the outlay that relates to the month of April. Secondly,

the statement of cash flows does not include any cash outlay for goods purchased as there has not yet

been any payment for the goods, while the statement of profit or loss includes an expense for inventory

as the cost of sales.