Page 636 - Accounting Principles (A Business Perspective)

16. Analysis using the statement of cash flows

Increase or – Decrease in
related prepaid expense
Noncash operating expenses (such as depreciation expense and amortization expense), revenues, gains, and

losses are reduced to zero in the cash basis income statement.

Welby Company
Comparative balance sheet
2010 December 31 and 2009
2010 2009 Increase/
(Decrease)
Assets
Cash $21,000 $ 10,000 $11,000
Accounts receivable 30,000 20,000 10,000
Merchandise inventory 26,000 30,000 (4,000)
Equipment 70,000 50,000 20,000
Accumulated depreciation – (10,000) (5,000) (5,000)
Equipment
Total assets $137,000$105,000 $32,000
Liabilities and stockholders'
equity
Accounts payable $9,000 $ 15,000 $(6,000)
Accrued liabilities payable 2,000 -0- 2,000
Common stock ($10 par value) 90,000 60,000 30,000
Retained earnings 36,000 30,000 6,000
Total liabilities and stockholders' $137,000$105,000 $32,000
equity
Welby Company
Income statement
For the year ended 2010 December 31
Sales $140,000
Cost of goods sold 100,000
Gross margin $ 40,000
Operating expenses (other than $25,000
depreciation)
Depreciation expense 5,000 30,000
Net income $ 10,000
Additional data
1. Equipment purchased for cash during 2010 amounted to $20,000.
2. Common stock with a par value of $30,000 was issued at par for cash.
3. Cash dividends declared and paid in 2010 totaled $4,000.

Exhibit 128: Financial statements and other data
Welby Company
Working paper to convert income statement from accrual basis to cash basis
For the year ended 2010 December 31

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