In this article, we prepare a cash flow statement for a sole trader’s business. Compared to a limited company, preparing a cash flow statement for a sole trader is significantly easier.
John Bros. started a business on 1 January 2017 with cash of $250,000. They purchased furniture for cash amounting to $35,000. They submitted the following information on 31 December 2017:
- Purchased merchandise for $85,000 of which $75,000 was paid during the year
- Salaries amounting to $72,000 of which $6,000 was unpaid at the end of the year
- Total sales of $245,000, including $35,000 receivables at year-end
- Rent paid for shop amounting to $60,000
- Commission received totaling $9,000
Required: Prepare a cash flow statement for John Bros. for 2017.
Explanatory note on the use of brackets: In accounting, it is customary to show a figure in brackets if it is a negative figure (i.e., preceded by a minus sign).
This figure will be deducted from the other figures to arrive at the total of the column. Brackets used in this way appear frequently in cash flow statements.