![]() ![]() Combining the amounts, the net change in cash that is explained by operating activities is a negative $50. Similarly, the increase in Supplies was not good for cash and it is reported as a negative $150. The increase in the Inventory account was not good for cash, as shown by the negative $200. Depreciation expense is added back to net income because it was a noncash transaction (net income was reduced, but there was no cash outflow for depreciation). The operating activities section began with the net income of $280 for the six-month period. ![]() Let's review the cash flow statement for the six months ended June 30: The SCF for the period of January 1 through June 30 is: The following comparative balance sheet shows the changes between Decemand June 30, 2022: This is done with a positive adjustment which adds back the $20 of depreciation expense. On the SCF, we convert the bottom line of the income statement for the month of June (a loss of $20) to the net amount of cash provided or used by operating activities, which was $0. Good Deal did not spend any cash in June, however, the entry in the Depreciation Expense account resulted in a net loss on the income statement. The cash flow statement for the month of June illustrates why depreciation expense needs to be added back to net income. As a result, Good Deal's financial statements at June 30 will be as follows:Ī balance sheet comparing June 30 amounts to May 31 amounts and the resulting differences or changes is shown here: Let's assume that depreciation expense of $20 per month is recorded by Good Deal. Recall that on May 31 Good Deal purchased the office equipment (a new computer and printer) for $1,100 and it was put into service on the next day. The only transaction recorded by Good Deal during June was the depreciation of its office equipment. Confused? Send Feedback June Transactions and Financial Statements ![]()
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