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

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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Attachments

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 ...

Solution Summary

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

$2.19