Reference no: EM132525904
Statement of cash flows for sole trader and analysis
The financial statements for the business of Trinh's Nail Supplies for the past two years are presented below.
Additional information
1. All purchases and sales of inventories are on credit. All purchases of office supplies are for cash.
2. The bank overdraft is considered to be part of the entity's cash management function.
3. During the year ended 30 June 2020, the owner, Trinh, withdraw $12800 in cash for personal use.
4. The entity sold some fixtures for $1200 cash during the current year. These fixtures initially cost $4200 and had been written down to a carrying amount at the date of sale of $2000.
5. Depreciation of fixtures has been included in 'other expenses' for the year ended 30 June 2020. All remaining other expenses were paid in cash.
TRINH'S NAIL SUPPLIES
Comparative Income Statements
for the year ended 30 June
2019 2020
Sales $400000 $500000
Cost of sales 350000 458000
GROSS PROFIT 50000 42000
Interest income 1000 2000
Loss on the sale of fixtures -- 800
51000 43200
Office supplies used 10000 11000
Other expenses 29000 29000
39000 40000
PROFIT $12000 $3200
TRINH'S NAIL SUPPLIES
Comparative Statements of financial position
as at 30 June
2019 2020
ASSETS
Cash at bank $4400 --
Accounts receivable 42000 $ 60000
Inventory 80000 40000
Office supplies 2000 5000
Freehold property 60000 80000
Fixtures 40000 46000
Accumulated depreciation - fixtures (16000) (20200)
Investments 6000 16000
$218400 $226800
LIABILITIES AND EQUITY
Bank overdraft -- 4000
Accounts payable 26000 40000
Trinh, Capital 192400 182800
$218400 $226800
Required
Question (a) Prepare the statement of cash flows for Trinh's Nail Supplies for the year ended 30 June 2020, using the direct method.
Question (b) Comment on the cash flow position of the entity as shown in the statement of cash flows.