Accounting Business Reporting for Decision Making

276 Accounting: Business Reporting for Decision Making

Let’s now look at another month of trading. On 2 May, Teresa bought another $50 000 worth of inven-

tory on credit and paid the account owing from her previous inventory purchases. She decided to spend

some money on advertising to try to boost her business’s name in the area. This marketing cost $5000.

Teresa paid for this in cash. Throughout May, Teresa sold $55 000 worth of rugs for $100 000 ($80 000

for cash and $20 000 on credit).

Teresa’s statement of profit or loss and statement of cash flows for May 2016 and the balance sheet as

at 31 May 2016 are shown in illustrative examples 7.13, 7.14 and 7.15 respectively.

Again note the differences in flows between the statement of profit or loss and the statement of cash

flows: the statement of profit or loss reports the flows of income and expenses, while the statement of

cash flows reports the flows of cash.

ILLUSTRATIVE EXAMPLE 7.13

Statement of profit or loss

Teresa’s Carpets and Rugs

Statement of profit or loss for the month ended 31 May 2016

Sales

Less: Cost of sales

Beginning inventory

Add: Purchases

Less: Ending inventory

$

(

15 000

50 000

10 000)

$ 100 000

55 000

Gross profit

Less: Other expenses

Marketing

Lease payment

Depreciation

Interest expense

Lease amortisation

5 000

1 000

334

250

167

45 000

6 751

Profit $ 38 249

ILLUSTRATIVE EXAMPLE 7.14

Statement of cash flows

Teresa’s Carpets and Rugs

Statement of cash flows for the month ended 31 May 2016

Cash inflows

Proceeds from sales $ 80 000

Total cash inflows 80 000

Cash outflows

Payment to suppliers for rugs and carpets

Payment for marketing

Payment for monthly lease expense

Payment for interest

35 000

5 000

1 000

250

Total cash outflows 41 250

Net cash flow 38 750

Beginning cash balance 78 750

Ending cash balance $ 117 500