The Cash-Flow Activity

The Cash Flow Activity Spreadsheet describes one month in the life of ACME Paper Supplies. You are asked to use the information given to construct a Balance Sheet, a Profit and Loss Account and a Cash Flow Statement.

One of the Important elements here is to ensure that all of your statements agree.

ACME PAPER Supplies.

The company also received payments from its Trade Debtors (Transaction C).

Towards the end of February, a new van was purchased for £30,000, and the first payment of interest was taken from the bank account. In addition a tax demand of a further £1000 was received.

In the middle of February, the van used to deliver products to customers broke down, and the garage said that it was beyond repair. This meant that the current asset value of the van (£5000) was effectively lost, and a new van needed to be bought to replace it.

ACME Paper Supplies is a small retail company which specialises in quality paper products. During February the company had a number of sales to various organisations. These are summarised as Transactions A & B.

There was not enough money in the bank to buy a new van, so a bank loan of £25,000 was negotiated with the bank. The interest on this loan would be 10% p.a.

Shortly after this, an order for £14,000 of paper from the maufacturers was delivered with a forceful request for payment of part of a previous order . A cheque for £13,000 was written immediately.

Acme Paper: TRANSACTIONS for February

A Cash Sales: £8000 worth of Stock sold for £12000B Credit Sales: £19000 worth of Stock sold for £28000C Trade Debtor payments: £18000D Bank Loan arranged £25000E Depreciation of old Van £5000F Purchase £14000 Stock on Credit

G Pay Creditors £13000 cashH Purchase new Van for £30000I Pay interest of £2500 on loan.J Receive Tax Demand for £1000

This panel shows the

effect of each transaction on the Balance

Sheet.

TRANSACTION EFFECT ON BALANCE SHEET Amount

A Reduce Stock £8,000Increase Bank Account £12,000Increase Retained Profit £4,000

B Reduce Stock £19,000Increase Debtors £28,000Increase Retained profit £9,000

C Increase Bank Account £18,000Reduce Debtors £18,000

D Increase Bank Account £25,000Increase Loan £25,000

E Reduce Fixed Assets £5,000Reduce Retained Profit £5,000

F Increase Stock £14,000Increase Creditors £14,000

G Reduce Creditors £13,000Reduce Bank Account £13,000

H Increase Fixed Assets £30,000

Reduce Bank Account £30,000

I Reduce Bank Account £2,500

Reduce Retained Profit £2,500

J Reduce Retained Profit £1,000

Increase Unpaid Tax £1,000

Tax Demand for a further £1000

Cash Sales: £8000 worth of Stock sold for

£12000

Credit Sales: £19000 worth of Stock sold for

£28000

Trade Debtor payments: £18000

Bank Loan arranged £25000

Pay interest of £2500 on loan.

Depreciation of old Van £5000

Purchase £14000 Stock on Credit

Pay Creditors £13000 cash

Purchase new Van for £30000

The February Balance Sheet

has been amended as a result of the transactions.

Balance Sheet - January

ASSETS CLAIMS

Fixed Assets £211,000 Capital £150,000Stock-in-trade £28,000 Retained profit £56,000Trade Debtors £33,000 Bank Loan £50,000Bank Account £10,000 Trade creditors £23,000

Unpaid Tax £3,000

Total £282,000 Total £282,000

Revised Balance Sheet - February

ASSETS CLAIMS

Fixed Assets £236,000 Capital £150,000Stock-in-trade £15,000 Retained profit £60,500Trade Debtors £43,000 Bank Loan £75,000Bank Account £19,500 Trade creditors £24,000

Unpaid Tax £4,000

Total £313,500 Total £313,500

This panel shows the effect of each transaction on the Profit and Loss

AccountTRANSACTION EFFECT ON PROFIT & LOSS Amount

A Turnover £12,000Cost of Sales £8,000

B Turnover £28,000Cost of Sales £19,000

C Trade Debtor payments: £18000 None

D Bank Loan arranged £25000 None

E Depreciation of old Van £5000 Overheads £5,000

F Purchase £14000 Stock on Credit None

G Pay Creditors £13000 cash None

H Purchase new Van for £30000 None

I Pay interest of £2500 on loan. Interest on Loan £2,500

J Receive Tax Bill for £1000 Tax £1,000

Cash Sales: £8000 worth of Stock sold for £12000

Credit Sales: £19000 worth of Stock sold for £28000

Profit & Loss Account

Turnover £40,000Cost of Sales £27,000Gross profit £13,000

Overheads £5,000Operating profit £8,000

Interest on Loan £2,500Profit Before Tax £5,500

Tax £1,000Profit After Tax £4,500

SURPLUS £4,500

The February Profit and Loss account has been constructed from the information in the

previous slide.

Compare

Balance Sheets (Jan/Feb) (Retained Profit)

Compare

Balance Sheets (Jan/Feb) (Retained Profit)

The Cash-Flow ActivityP and L v Balance Sheet

The Balance Sheet shows: January Retained profit: £56,000 February Retained profit: £60,500

This is an increase of £4,500

The P and L Account Shows:

February Surplus: £4,500

The Profit Agrees

The Profit Agrees

TRANSACTION EFFECT ON CASH FLOW Amount

A CASH Inflow (Op Act) £12,000

B None

C Cash Inflow ( Op Act) £18,000

D Financing (Cash Inflow) £25,000

E None

F None

G Cash OUTflow ( Op Act) -£13,000

H Capital Expenditure (OUT) -£30,000

I Servicing of Finance (OUT) -£2,500

J None

Pay interest of £2500 on loan.

Receive Tax Bill for £1000

Depreciation of old Van £5000

Purchase £14000 Stock on Credit

Pay Creditors £13000 cash

Purchase new Van for £30000

Trade Debtor payments: £18000

Bank Loan arranged £25000

Cash Sales: £8000 worth of Stock sold for £12000

Credit Sales: £19000 worth of Stock sold for £28000This panel

shows the effect of

each transaction

on the Cash Flow

The February Cash Flow has

been constructed

from the information on

the previous slide.

Cash Flow Statement - February

Net Cash Inflow from Op. Act £17,000Servicing of Finance -£2,500

£14,500

Taxation £0£14,500

Capital Expenditure -£30,000-£15,500

Financing £25,000£9,500

Increase in Cash £9,500

Compare increase in Bank on Balance Sheets (Jan to Feb)

Compare increase in Bank on Balance Sheets (Jan to Feb)

Tax demanded, but not paid!

Tax demanded, but not paid!

The Cash-Flow ActivityCash Flow v Balance Sheet

The Balance Sheet shows: January Bank Balance: £10,000 February Bank Balance: £19,500

This is an increase of £9,500

The Cash Flow Statement shows:

February Cash Inflow: £9,500

The Cash Agrees

The Cash Agrees