The cash flow statements show: 1) In 2014, cash decreased from $2,400 to -$12,720 due to negative net cash flows from investing and operating activities. 2) In 2015, cash increased from -$12,720 to -$4,200 because positive net cash flows from operating ($12,220) and financing ($17,300) activities exceeded negative cash flows from investing. 3) To improve 2014 cash flow, the business could cut salaries by firing extra workers, use machinery longer before replacing, and reduce drawings.

1. Cash Flow Statement Exercise 2
1. The following is the cash account of Los Huevos Ltd. for the years 2014 and 2015:
Cash a/c
Jan 1 14 Balance $2400
Mar 11 Sales $35000
Mar 29 Debtor $24500
Apr 8 Sales $12000
May 14 Capital $5000
Jul 3 Debtors $16250
Aug 16 Computers $9000
Oct 31 Rent revenue $4000
Nov 27 Loan $11400
Dec 31 Balance $12720
$132270
Feb 22 Drawings $7500
Mar 14 Accrued $2970
Advertising
Apr 20 Computers $25500
May 10 Inventory $32300
May 25 Office Exp. $4850
Jun 11 Creditors $23900
Aug 7 Salary $16170
Sept 30 Sales Return $1960
Nov 1 Furnitures $7200
Dec 16 Inventory $9920
$132270
Cash a/c
Jan 9 Bank Loan $20000
Feb 13 Rent Revenue $3500
Mar 20 Sales $36000
Apr 17 Debtors $12700
May 8 Debtors $8280
Jun 6 Machinery $19000
Jul 14 Inventory $1300
Aug 12 Accrued Rent $500
Sept 2 Sales $27500
Nov 18 Inventory $670
Dec 31 Balance $4200
$133650
Jan 1 15 Balance $12720
Feb 14 Inventory $37820
Mar 23 Machinery $36000
Apr 12 Creditors $10200
May 18 Sales Return $850
Jul 4 Inventory $9400
Aug 26 Interest $1100
Sept 29 Salary $18860
Oct 1 4 Drawings $5200
Nov 25 Drawings $1500
______
$133650
a) Prepare one cash flow statement for the business for each year.
b) Comment on the cash balance and net cash flows for both 2013 and 2014.
c) Suggest 3 ways to improve the cash flow of Los Huevos Ltd in year 2014.
2. Explain the 3 main purposes of a cash flow statement.
3. It is said that a business can show a profit during an accounting period but experience negative
net cash flow at the same time. How is this possible? Explain. Discuss also the opposite situation
(i.e. showing a loss but having a positive net cash flow).

2. Answer:
b.
During the year 2014 cash had decrease from $2400 to
negative $12720. This is mainly due to the negative net cash flow
for investing and operating.
While in the year 2015 cash had increasing from -$12720 to -
$4200. The main reason is positive net cash flow for operating
$12220 and financial 17300 when two of this combine together
the amount is more than the negative net cash flow for financial.
c.
cut down salary by firing extra worker , use the mechanary longer
for another year any estra mechinary that we not using sell it.
Reduce drawing
3.
i. The business can generate positive cash flow.
ii. It has enough cash to service debts.
iii. It has enoug cash to expand its operation.
4. – spend a lot money buying mechinary
- making profit 5 million used it to buy mechinary