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CO5117 Introduction to Accounting SP1, 2011

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Topic 8 Suggested Solutions to Tutorial Questions
Chapter 13
Discussion Qu 1
Managing cash flow is important because in our economy cash is the medium of exchange
by which business is done. An enterprise must have sufficient cash inflow to cover its need
for cash outflow to pay bills, buy new assets, pay dividends and so on. In the short run, or at
difficult times of the year, managing cash flow may be more important than managing
overall performance as measured by the accrual-basis income statement.

Discussion Qu 2
Yes. A company can show good net profit, but if it does not collect its accounts receivable,
or if it buys too much inventory, so cash is either not coming in from customers or is tied up
in inventory, the cash from operations can be smaller than net profit.

Discussion Qu 6
a Cash received from customers
Cash paid to suppliers
Cash paid for taxes
b Issue of shares, dividend distributions, i.e. payment of borrowings or increase in
borrowings.
c Purchase of property, plant and equipment
Acquisition of other companies
Sale of property, plant and equipment

Discussion Qu 7
Cash flow from operations can be negative when net profit is positive because of differences
between cash and accrual amounts, e.g. if a company purchases inventory for $1000 cash
and sells it on credit for $1500 but at the end of the period has not received that amount then
cash flow from operations would be negative
$1000 while accrual profit would be plus $500.

Problem 13.14
STATEMENT OF CASH FLOWS
For the year ended 30 June 2009
Cash flow from operations $000 $000
Cash received from customers 350
Cash paid to suppliers (130)
Cash paid to employees (35)
Cash paid for other expenses (100) 85
Cash flow from investing
Purchase of equipment (110)
Cash flow from financing
Issue of debentures 65
Issue of shares 51
Payment of dividends (20) 96
Increases in cash 71
Opening cash balance 20
Closing cash balance 91
CO5117 Introduction to Accounting SP1, 2011

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Workings:

AR Salaries Payable
O/B 40 Cash 350 Cash 35 26
370 20
C/B 60 11

Inventory Accounts Payable
O/B 80 COGS100 Cash130 60
110 110
C/B 90 40


Accrued Expenses Retained Profits
Cash100 30 Div 20 O/B 25
80 NP 70
10 C/B 75


Problem 13.17
Salaries paid $40 000
Payment to suppliers $610 000
Interest paid $110 000
Income tax paid $80 000

Inventory Accounts Payable
380,000 620,000 610,000 310,000
580,000 580,000
340,000 280,000


Interest Payable Tax Payable
110,000 10,000 80,000 80,000
110,000 95,000
10,000 95,000