1) Depreciation - Depreciation is a non-cash operating expense and therefore, it should

be excluded both from the sources and uses of cash.

2) Issuance of Note for Truck and Purchase of Truck with a Note - Issuance of note
for truck and purchase of note truck with a note indicates a non-cash transaction as no
outflow of cash was involved at the time of purchase of truck. This form of transaction is
reported as a non-cash investing and financing activity at the end of the statement of
cash flow. Issuance of note is a financing activity and purchase of truck is an investing
activity.

Analysis

Based on the above cash flow statement, it can be concluded that the cash flow has
actually increased to a level of $109,000. However, the cash flow from business
operations is only $39,000 (382,000 - 253,000 - 90,000) which might not appear to be
significant. The balance amount of increase in cash flows of $70,000 (109,000 - 39,000)
is from operating, financing and investing activities undertaken by the business.
Considering the company's first year of business, the cash flow from business
operations ($39,000) might not indicate an operating failure. However, while calculating
net income, the depreciation expense of $80,000 can have a significant impact on the
company's profitability and would finally result in a loss indicating an operational failure
(after taking into account interest income and expense). For a better evaluation of cash
flow position, the various sources/uses of cash should be recorded in different
categories (operating, investing and financing).

Conclusion

In my opinion, based only on the information provided in the cash flow statement,
the Vice President of Sales appears to be correct as total cash has actually
increased to $109,000 and cash flow from business operations turns out to be $39,000
(as shown above). However, when we take non-cash expense of depreciation into
consideration (which gets reported in the income statement), the company has actually
suffered a loss. Therefore, the information available in other financial statements (such
as income statements) should also be evaluated in order to understand the company's
exact financial position.