Financial Accounting Memo

Operating Activities

This year we successfully met one of our major goals head on by showing a positive net cash flow from operations of $20,000. Although I know this value may seem as if it is a small number to some, we can and should look at this as our first step in our long and profitable journey together. Customer demands of our merchandise were positive, as indicated strictly by net product sales of $122,000 before all operating expenses, interest, and taxes. I believe we have gone through the very difficult phase of introducing our name and product line into the market and are beginning the next phase of growing our business.

A key highlight of our operating activities this year included stocking up on inventory items in anticipation of these customer purchases. Understand that we expect to continue this type of cash outflow next year to further build our inventories as word spreads of our unique range of product offerings.

Investing Activities

I said earlier that one of our goals this year was to demonstrate a positive cash flow from operations. We could not achieve this without investing cash in our fixed assets. To this end, a net $345,000 was used to purchase equipment required for us to operate as an entity. This equipment included items such as building fixtures, warehouse equipment, trucks, and various other articles.

The cash generated by our operating activities currently does not cover our investment needs, nor do we expect it to at this point in our short history. According to Kimmel, Weygandt, and Kieso (2007), cash flow for investing activities during the growth phase can still outweigh cash from operations.

Financing Activities

To finance these investments, we successfully issued a large number of shares of common stock. We later made the decision to repurchase some of these shares (in the amount of $10,000) to hold as treasury stock. We also elected to borrow funds in the amount of $20,000 for the purchase of...