Presented below are selected financial statement items for Rowe Corporation for December 31, 2012.
Inventory $55,000 Cash paid to purchase equipment $30,000
Cash paid to suppliers 154,000 Equipment 40,000
Buildings 400,000 Revenues 200,000
Common stock 20,000 Cash received from customers 172,000
Cash and dividends paid 6,000 Cash received from issuing
bonds payable 40,000
Instructions
Determine which items should be included in a statement of cash flows, and then prepare the statement for Rowe Corporation.
To determine which items should be included in a statement of cash flows, we need to identify the cash transactions during the specified period. Cash transactions include inflows and outflows of cash related to operating activities, investing activities, and financing activities.
Based on the given financial statement items, we can categorize them as follows:
Operating activities:
- Cash paid to suppliers: $154,000
- Cash received from customers: $172,000
Investing activities:
- Cash paid to purchase equipment: $30,000
Financing activities:
- Cash received from issuing bonds payable: $40,000
- Cash and dividends paid: $6,000
Items that should be included in the statement of cash flows are the cash transactions related to operating, investing, and financing activities. Using the above categorization, we can now prepare the statement of cash flows for Rowe Corporation:
Rowe Corporation
Statement of Cash Flows
For the Year Ended December 31, 2012
Operating activities:
Cash received from customers: $172,000
Cash paid to suppliers: $154,000
Net cash provided by operating activities: $18,000
Investing activities:
Cash paid to purchase equipment: -$30,000
Net cash used in investing activities: -$30,000
Financing activities:
Cash received from issuing bonds payable: $40,000
Cash and dividends paid: -$6,000
Net cash provided by financing activities: $34,000
Net increase in cash: $22,000
Cash at the beginning of the year: $0
Cash at the end of the year: $22,000
In this statement of cash flows, we separate the cash transactions into the three main categories (operating, investing, and financing activities) and calculate the net cash provided or used in each category. Finally, we determine the net increase in cash by summing up the net cash provided/used in the three categories and also include the cash balances at the beginning and end of the year.