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Financial Accounting: Water Fun Store; prepare income statement and cash flows

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The Water Fun Store is a retailer of water sports products for backyard swimming pools. During August, the firm had the following operating activities:

Date Event

Aug. 1 Bought $5000 of goods for resale from Pinetree Wholesalers on credit
5 Paid $450 to the local newspaper for advertising that ran during July.
6 Paid $975 rent for the month of August.
9 Sold goods to customers for $7350 on credit. These goods had cost the firm $3600.
10 Paid $3000 to Pinetree Wholesalers in partial payment for goods purchased August 1.
11 Collected $5350 from goods sold on August 9.
13 Bought $9200 of goods for resale from Stanley Company. Paid cash.
16 Paid employees for their work so far in August, $1050.
19 Sold goods to customers on credit for $6350. These goods had cost the firm $2400.
25 Collected $3700 from the sales made on August 19.
29 Paid $975 rent for the month of September.
31 Employees had earned an additional $1200 of wages but would not be paid until September 1.

A) Prepare a report of net cash flow from operating activities.
B) Prepare an accrual basis income statement.
C) Which documents a more realistic or complete picture of August's activity? Why?

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Solution Summary

The solution presents both an accrual-based income statement and a cash flow report together with explanations.

Solution Preview

Refer to attached excel file.

The answers are in the 2nd worksheet. Workings are presented in the first worksheet.

General Journal
Date Particulars DR ($) CR ($)
1 Purchases 5000
Creditors - Pinetree Wholesalers 5000
5 Accrued Advertising Expenses 450
Cash 450
6 Rent Expense 975
Cash 975
9 Debtors 7350
Sales 7350
10 Creditors - Pinetree Wholesalers 3000
Cash ...

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