In this chapter, you learned about three important financial statements: the income statement, statement of owner’s equity, and balance sheet. As mentioned in the margin note on page 34, most firms also prepare a statement of cash flows. Part of this statement reports the cash received from customers and cash paid for goods and services.

REQUIRED

Take another look at the Demonstration Problem for Damon Young’s “Home and Away Inspections.” Note that when revenues are measured based on the amount earned, and expenses are measured based on the amount incurred, net income for the period was $4,165. Now, compute the difference between cash received from customers and cash paid to suppliers of goods and services by completing the form provided below. Are these measures different? Which provides a better measure of profitability?

Cash from customers ________

Cash paid for wages ________

Cash paid for rent ________

Cash paid for utilities ________

Cash paid for insurance ________

Cash paid for supplies ________

Cash paid for telephone ________

Total cash paid for operating items ________

Difference between cash received from

customers and cash paid for

goods and services________