FABM 2

Credit:
Elements in Income Statement:  Withdrawals account

Net Sales = Gross Sales/Sales - Sales returns and allowances -

Sales discounts Statement of Cash Flows

Gross Sales/Sales = Net Sales + Sales returns and allowances Cash Flows from Operating Activities (Current Assets and
+ Sales discounts Current Liabilities, Income and Expenses)

Net Purchases = Purchases - Purchases returns and Cash Inflows:

allowances - Purchases discounts  Receipts from sale of goods and performances of
services
Net Cost of Purchases = Net Purchases + Transportation In  Receipts from royalties, fees, commissions and other
revenues
Goods Available for Sale = Beginning Inventory + Net Cost of
Purchases Cash Outflows:
 Payments to suppliers of goods and services
Cost of Sales/Cost of Goods Sold = Goods Available for Sale -  Payments to employees
Ending Inventory  Payments for taxes
 Payments for interest expense
Gross Profit = Net Sales - Cost of Goods Sold  Payments for other operating expenses

Operating Profit = Gross Profit - Total Operating Expenses Cash Flows from Investing Activities (Non-current Assets)

Cash Inflows:
Closing Entries:  Receipts from sale of property and equipment
 Receipts from sale of investments in debt or equity
First Entry: securities
 Receipts from collections on notes receivable
Debit:
 Ending balance of inventory (Merchandise Inventory, Cash Outflows:
End)  Payments to acquire property and equipment
 Temporary Accounts with credit balances (Sales,  Payments to acquire debt or equity securities
Purchases returns and allowances, purchase discounts)  Payments to make loans to others generally in the form
of notes receivable
Credit:
 Income Summary Cash Flows from Financing Activities (Non-current Liabilities
and Owner’s Equity)
Second Entry:
Cash Inflows:
Debit:  Receipts from investments by owners
 Income Summary  Receipts from issuance of notes payable

Credit: Cash Outflows:

 Beginning balance of inventory (Merchandise Inventory,  Payments to owners in the form of withdrawals
Beginning)  Payments to settle notes payable
 Temporary accounts with debit balances (Expenses,
sales returns and allowances, sales discount, purchases, Cash Flows from Operating Activities:
transportation in, transportation out)
Direct Method
Third Entry:  Add individual operating cash inflows
 Subtract individual operating cash outflows
Debit:  Receipts are added
 Income summary  Expenses are deducted

Credit: Indirect Method:

 Capital account  Increase in current asset (negative)
 Decrease in current asset (positive)
Fourth Entry:  Increase in current liabilities (positive)
 Decrease in current liabilities (negative)
Debit:  Non-cash expenses are added
 Capital Account  Non-cash income are deducted