Cash Flow Statements of Nybrostrand Company

Cash Flows and Net Income Comparison

The net cash flow was $613,000 while the net income was $161,150 for the year. The positive net cash flow represents the amount of money that the business received from its activities that include financing, operating, and investing. Some of this money is not directly in the form of profits but as loans, capital, and sale of inventories. On the other hand, the net profit refers to the extra money that the firm raises from its operating activities; it is the result of deducting all the expenses from the sales amount (Weil, Schipper, & Francis, 2014). Moreover, the cash flow indicates the total amount of funds that the business had at the year-end. 

Discussion of the Results

Cash Flow from Operations

The cash flow from operation activities was $143,000. The amount represents the funds raised from the usual business undertakings that include sales and acquisition of inventory. It was as a result of two adjustments. First, it involved the addition of the depreciation figure, $24,350 back to the net profit since it is not a cash expense. Notably, depreciation had been deducted so as arrive at the net profit. Therefore, adding it back helps obtain the actual amount available after deducting all the other cash-expenditure items (Weil, Schipper, & Francis, 2014). Second, the increased value of inventory, -$42,500, was deducted from the net profit to recognize the outflow of cash from the business. That is because the firm spent money when acquiring the related stock.

Cash Flow from Investing Activities 

The cash flow from investing activities was -$40,000. The amount represents the funds that the organization paid as down payment to acquire the new parcel of land. It is recognized as a negative balance because it was an outflow of cash from the business (Weil, Schipper, & Francis, 2014).

Cash Flow from Financing Activities

The total net cash flow from financing activities was $495,000. The computation involved three items that include paid-up share capital, borrowings, and dividends. The paid-up share capital was added to the category given that the business received it (Weil, Schipper, & Francis, 2014). Notably, the share capital recognized was $150,000 and not $180,000, the entire issues. The business only received $150,000, and it is the only amount that it should recognize as inflow. Another component in the financing part was the amount of long-term borrowings of $360,000. The company received the money from the bank for the purchase of land.  Therefore, it was an inflow that required being added to the financing activities (Porter & Norton, 2014). Lastly, the amount of dividend paid was deducted from the list because it was an outflow of funds from the organization.

Summary of Lessons Learned

From the SLPs, I have learned the differences between the major three financial statements that include the income statement, balance sheet, and cash flow statement. The income statement shows the net profit as a result of the deduction of all the business expenses from the revenues. The balance sheet is a statement that records the values of assets, capital, and liabilities (Porter & Norton, 2014). Lastly, the cash flow statement shows the balance between the money that the business received and the ones that it spent.

I have also learned that it is vital to make accounting adjustments whenever an organization comes to the realization of the existence of a transaction that was either omitted entirely or recorded in a wrong manner. It is necessary to make the adjustments because they might have substantial effects on the figures of the statement such as the net profit ( if you're interested in such detailed review, you can order it here). For example, the mistreatment of the cost of inventory in Module 1 saw the firm record a net profit of $118,650. However, a proper adjustment in Module 2 showed a net profit of $161,150. Therefore, the statements can easily present misleading information if they are erratic and without appropriate further adjustments.

Lastly, I have learned that there is a difference between the cash flow balance and the net profit during any period of operation. The difference exists because the net profit only includes the extra money generated from the business processes (revenues – expenses). Meanwhile, the cash flow statement shows the balance between all the funds that the company received against those which it paid (Sinha, 2012). The cash flow statement incorporates all the categories of transactions classified as operating, financing, and investing activities. It is not restricted to the  operating activities as for the case of the income statement.

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