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.
For Cashflow statements to be useful, you must be able to understand each section of it. This article will teach you how to understand and analyze cash flow statements: How to Read and Interpret a Cash Flow Statement