The Marketing Store was established as a sole trader business, specialising in providing marketing services, on 1

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The Marketing Store was established as a sole trader business, specialising in providing marketing services, on 1 January 2016. The owner, Jenny Smart, contributed $100 000 in cash to the business and did not withdraw funds for the year. For the year ended 31 December 2016, the following events occurred in the business:
1. Received $280 000 cash for marketing services provided.
2. Paid cash expenses of $200 000 for office supplies and labour.
3. At the end of the year, the business purchased a vehicle for $32 000 cash and a new computer design system for $50 000 cash.
4. The business leases premises as an office. Lease rental payments for the year amounted to $33 000.
5. The business purchased for $80 000 a block of land on which Jenny hopes to build an office in the new year. To help pay for the land, the business had to borrow $30 000 from a bank in cash.


Required
A. Prepare an income statement for The Marketing Store for the year ended 31 December 2016.
B. Prepare a statement of cash flows for The Marketing Store for the year ended 31 December 2016.
C. Discuss if a business can operate profitably and still have a net cash outflow for the year.
D. Provide a counter argument to the statement that ‘a better indicator of an entity’s performance is cash flow’.

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Financial Accounting

ISBN: 9781118608203

9th Edition

Authors: John Hoggett, Lew Edwards, John Medlin, Keryn Chalmers, Jodie Maxfield, Andreas Hellmann, Claire Beattie

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