Three doors for cash
Morrow Bikes' bank statement for September lists everything that moved. Customers paid $14,000. Suppliers, staff and the landlord took $11,000, and the bank took $200 of interest. Morrow bought a lift for $4,000, borrowed $5,000, repaid $1,000 of principal and paid the owner $1,500. That is one column of numbers with three different stories inside it.
The Cash Ledger (cash flow statement) has three doors, and every cash movement goes through exactly one of them. Operating cash comes from the loop's main activity: selling repairs and paying for the people and parts that make them. Investing cash buys and sells the long-lived things the loop runs on, and investments. Financing cash raises money from lenders and owners and gives it back. The rulebook decides the door, not management's preferred story. This is a Cash Ledger question on the cash clock, and the first thing it asks is: which door?
- Customers paid +14,000
- Suppliers, staff, rent −11,000
- Interest paid −200 (US GAAP)
- Net +2,800
- New lift −4,000
- Net −4,000
- Bank loan +5,000
- Principal repaid −1,000
- Owner distribution −1,500
- Net +2,500
Operating: 14,000 − 11,000 − 200 = +2,800. Investing: −4,000. Financing: 5,000 − 1,000 − 1,500 = +2,500. Add them: 2,800 − 4,000 + 2,500 = +1,300, and cash climbs from 8,000 to $9,300. The statement always bridges opening cash to closing cash; if it does not, something is missing.
What never went through a door
Suppose Morrow had taken the lift on a finance lease instead of paying cash. The lift and the lease liability both appear on the Snapshot (balance sheet), but nothing passed through the bank, so nothing appears in the three totals. A purchase paid for with shares is the same. Significant noncash investing and financing transactions are disclosed separately, outside the cash totals, and a model that treats them as cash capex on day one is wrong on the cash clock.
Morrow pays the bank $800 of interest and $2,200 of principal. Under US GAAP, where does each go on the Cash Ledger?