Using the information below, complete the operating cash flow section of the Statement of Cash Flows for Peter Ltd using direct method. Your presentation must be consistent with the requirements of AASB107. Ignore tax. Reporting date is 30 June. The balances of selected accounts of Peter Ltd at 30 June 2021 and 30 June 2022 were ($000): 2021 2022 Cash 3850 1200 Inventory 3750 4250 Accounts receivable 2800 3500 Allowance for doubtful debts 320 260 Land 5000 5000 Plant 2750 2800 Accumulated depreciation 490 450 Accounts payable 3200 3500 Rent payable 100 130 Salaries payable 120 190 Share capital 1000 1000 Sales (on credit) 7750 6550 Cost of goods sold 1250 1100 Doubtful debts expense 280 300 Rent expense 540 450 Salaries expense 800 750 Depreciation expense 260 180 Required: Peter Ltd’s operating cash flow section extracted from the Statement of Cash Flows for year ended 30 June 2022 (Direct Method)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Using the information below, complete the operating cash flow section of the Statement of
| 2021 | 2022 | |
| Cash | 3850 | 1200 |
| Inventory | 3750 | 4250 |
| 2800 | 3500 | |
| Allowance for doubtful debts | 320 | 260 |
| Land | 5000 | 5000 |
| Plant | 2750 | 2800 |
| 490 | 450 | |
| Accounts payable | 3200 | 3500 |
| Rent payable | 100 | 130 |
| Salaries payable | 120 | 190 |
| Share capital | 1000 | 1000 |
| Sales (on credit) | 7750 | 6550 |
| Cost of goods sold | 1250 | 1100 |
| Doubtful debts expense | 280 | 300 |
| Rent expense | 540 | 450 |
| Salaries expense | 800 | 750 |
| Depreciation expense | 260 | 180 |
Required:
Peter Ltd’s operating cash flow section extracted from the Statement of Cash Flows for year ended 30 June 2022 (Direct Method)
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