University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

152

Pages:

1
Author:

stud_ice13

In Exhibit 12.14, Genesis’s T-accounts for balance sheet accounts are used to explain the cash inflows and outflows across various activities. Here’s a breakdown of how each entry impacts cash flow and reflects changes in Genesis’s accounts: Breakdown of Entries in Exhibit 12.14 1. Entry (1): Net Income o Records $38,000 net income as a credit to Retained Earnings and a debit to the Cash T-account. o This $38,000 is adjusted as other operating items are included, resulting in the $20,000 net cash from operating activities and ultimately contributing to the $5,000 increase in cash. 2. Entries (2) to (4): Adjustments for Noncash and Non-operating Items o Entry (2): Adds back $24,000 for depreciation (a noncash expense) to adjust net income. o Entry (3): Adds $6,000 loss on the sale of assets, adjusting net income to reflect this loss in cash. o Entry (4): Subtracts the $16,000 gain on the retirement of notes, as gains on financing activities do not impact operating cash flows. 3. Entries (5) to (10): Adjustments for Current Assets and Current Liabilities o These entries adjust net income for changes in current assets and liabilities (e.g., inventory, accounts receivable, and accounts payable), affecting operating cash flow. 4. Entry (11): Noncash Investing and Financing Transaction o Records the $60,000 purchase of assets using $60,000 in notes payable. This transaction does not affect cash directly, but it appears as a noncash investing and financing activity in the statement of cash flows. 5. Entries (12) and (13): Equity Transactions o Entry (12): Records the issuance of stock, resulting in a $15,000 increase in cash. o Entry (13): Records the $14,000 dividend payment, which reduces cash in the financing activities section. Summary of Cash Flow Impact This T-account analysis ultimately reconciles the $20,000 net cash from operating activities and the $5,000 net increase in cash as reflected in the statement of cash flows. This reconciliation ensures all balance sheet adjustments align with the cash flow statement.