Section 2: Analyzing Cash Flow After reviewing their balance sheet, Omar and Janet create a profit-loss statement to see how much money they are spending versus how much money their business is bringing in.
Below is April’s cash-flow statement for Rings and Things.
Operating Activities
Cash in
Online sales $600
In-store sales $1,000
Total operating cash in $1,600

Cash out
Supplies ($300)
Labor ($1,000)
Rent ($350)
Utilities ($100)

Net operating activities –$150

1. Based on the profit-loss statement, does Rings and Things have a positive or negative cash flow? Why?
They have a negative cash flow because they are losing money and their net operating expenses do not break even.

2. Based on the profit-loss statement, name two ways Janet and Omar can improve their cash flow.

3. Omar and Janet decide to revise their budget for Rings and Things. What suggestions about labor costs would you make, if the goal is to improve the business’s cash flow?

4. Omar and Janet are also trying to forecast what their federal and state income taxes will be at the end of the year. If Rings and Things had a negative cash flow of –$150.00 per month from January through April, but a positive cash flow of $1,000.00 per month (after expenses) from May through December, on what dollar amount will they determine their income taxes? What expenses could be used for tax deductions?