The purpose of the cash flow statement or statement of cash flows is to provide information about a company’s gross receipts and gross payments for a specified period of time. The gross receipts and gross payments will be reported in the cash flow statement according to one of the following classifications: operating activities, investing activities, and financing activities. The net change from these three classifications should equal the change in a company’s cash and cash equivalents during the reporting period.
For instance, the cash flow statement for the calendar year 2010 will report the causes of the change in a company’s cash and cash equivalents between its balance sheets of December 31, 2009 and December 31, 2010. In addition to the cash amounts being reported as operating, investing, and financing activities, the cash flow statement must disclose other information, including the amount of interest paid, the amount of income taxes paid, and any significant investing and financing activities which did not require the use of cash. The statement of cash flows is to be distributed along with a company’s income statement and balance sheet.
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Talukder Textile Mills was incorporated on January 1, 2012 with an initial capital of 5,000 shares of common stock having TK. 20 par value. During the first month of its operations, the company engaged in following transactions:
| Date | Transaction |
| Jan 2 | An amount of TK. 36,000 was paid as advance rent for three months. |
| Jan 3 | Paid TK. 60,000 cash on the purchase of equipment costing TK. 80,000. The remaining amount was recognized as a one year note payable with interest rate of 9%. |
| Jan 4 | Purchased office supplies costing TK. 17,600 on account. |
| Jan 13 | Provided services to its customers and received TK. 28,500 in cash. |
| Jan 13 | Paid the accounts payable on the office supplies purchased on January 4. |
| Jan 14 | Paid wages to its employees for first two weeks of January, aggregating TK. 19,100. |
| Jan 18 | Provided TK. 54,100 worth of services to its customers. They paid TK. 32,900 and promised to pay the remaining amount. |
| Jan 23 | Received TK. 15,300 from customers for the services provided on January 18. |
| Jan 25 | Received TK. 4,000 as an advance payment from customers. |
| Jan 26 | Purchased office supplies costing TK. 5,200 on account. |
| Jan 28 | Paid wages to its employees for the third and fourth week of January: TK. 19,100. |
| Jan 31 | Paid TK. 5,000 as dividends. |
| Jan 31 | Received electricity bill of TK. 2,470. |
| Jan 31 | Received telephone bill of TK. 1,494. |
| Jan 31 | Miscellaneous expenses paid during the month totaled TK. 3,470 |
You have to journalize the above transaction in Talukder Textile Mills journal Book
Solutions:
| Date | Particulars | Debit | Credit |
| Jan 1 | Cash | 100,000 |
|
|
| Common Stock |
| 100,000 |
|
Jan 2 |
Prepaid Rent |
36,000 |
|
|
| Cash |
| 36,000 |
|
Jan 3 |
Equipment |
80,000 |
|
|
| Cash |
| 60,000 |
|
| Notes Payable |
| 20,000 |
|
Jan 4 |
Office Supplies |
17,600 |
|
|
| Accounts Payable |
| 17,600 |
|
Jan 13 |
Cash |
28,500 |
|
|
| Service Revenue |
| 28,500 |
|
Jan 13 |
Accounts Payable |
17,600 |
|
|
| Cash |
| 17,600 |
|
Jan 14 |
Wages Expense |
19,100 |
|
|
| Cash |
| 19,100 |
|
Jan 18 |
Cash |
32,900 |
|
|
| Accounts Receivable | 21,200 |
|
|
| Service Revenue |
| 54,100 |
|
Jan 23 |
Cash |
15,300 |
|
|
| Accounts Receivable |
| 15,300 |
|
Jan 25 |
Cash |
4,000 |
|
|
| Unearned Revenue |
| 4,000 |
|
Jan 26 |
Office Supplies |
5,200 |
|
|
| Accounts Payable |
| 5,200 |
|
Jan 28 |
Wages Expense |
19,100 |
|
|
| Cash |
| 19,100 |
|
Jan 31 |
Dividends |
5,000 |
|
|
| Cash |
| 5,000 |
|
Jan 31 |
Electricity Expense |
2,470 |
|
|
| Utilities Payable |
| 2,470 |
|
Jan 31 |
Telephone Expense |
1,494 |
|
|
| Utilities Payable |
| 1,494 |
|
Jan 31 |
Miscellaneous Expense |
3,470 |
|
|
| Cash |
| 3,470 |
At the end of the period, the entire journal for the period is posted to the ledger accounts.
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The advantages of accounting standards include:
1. Improved comparability between financial statements prepared by different businesses
2. reduced costs to users and preparers different accounting policies and definitions because there are fewer choices to make.
The disadvantages of Accounting Standard include:
1. Some choice is often still allowed (so it is still difficult to compare financial statements prepared under different accounting policy choices)
2. If there is no choice at all, some businesses may be forced to apply inappropriate accounting policies
3. It is usually hard to write accounting standards so that unscrupulous businesses cannot still find a way to manipulate or abuse the rules in order to mislead readers
4. The economic and reporting environment is changing so rapidly that new accounting standards (or changes to old ones) are always being required
5. New standards may be inconsistent with old standards
6. It can be so difficult to get everyone to agree on a new accounting standard that compromises have to be made.
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