Week 15 Accounting Workshop: The Bicycle Shop's Year 2 Cash, Section by Section

Part 1 — The Big Picture

This week you learned that a business's net income and its cash move on different schedules, and that the statement of cash flows explains the difference section by section. In this workshop you work one small set of books end to end: the bicycle shop's Year 2 cash. You build the operating section by the indirect method, sign every adjustment and give its reason, sort the investing and financing lines, tie the total to the change in cash, compute four ratios and read each in one plain sentence, and then check a chatbot's version of the same work. This is the analyze-and-explain mode of the Accounting Workshop: the record-and-post work from Week 3 returns in two journal entries, the adjust-and-report work from Week 5 returns in the statement you build, and the weight falls on your reading of what the figures show.

Time budget: Plan for about 90 minutes.

Part 2 — The Task

Guiding question: Why did the bicycle shop's cash rise by a different amount than its $69,000 of net income in Year 2, and what do its statement of cash flows and four ratios say about the shop without calling any figure good or bad?

Workshop data: Dataset L, the bicycle shop's Year 2 cash flows and ratios (illustrative)

Source: The running case in Year 2: an illustrative, unnamed bicycle repair and sales shop, organized as a corporation by two founders, whose net income, balance sheet changes, and cash events for the year are given here; it describes no real business.

• Rows: seven operating lines, two investing lines, and four financing lines for Year 2, plus six year-end figures for the ratios; the operating table has 8 rows, the investing and financing table has 10 rows, and the ratio table has 4 rows
• Operating facts: net income $69,000; depreciation expense $12,000; a $2,000 gain on sale of equipment; accounts receivable up $3,000; inventory up $5,000; prepaid expenses down $1,000; accounts payable up $2,000
• Investing facts: new equipment bought for $40,000; old equipment sold for $7,000
• Financing facts: common stock issued for $45,000; treasury stock bought for $10,000; cash dividends paid of $7,000; a note payable repaid of $20,000
• Cash: $22,000 at the beginning of Year 2
• Year-end figures: current assets $100,000; current liabilities $40,000; total liabilities $60,000; total assets $200,000; net sales $690,000; gross profit $276,000

Part 3 — Materials & Procedure

Tools and materials

• A free spreadsheet (Google Sheets, or any free spreadsheet) for journals, T-accounts, trial balances, schedules, and statements, with every total computed by formula; the SEC's free EDGAR search for public companies' annual reports; and one approved chatbot used as a sparring partner whose entries, totals, and claims about standards and tax rates the student checks by hand and against the pinned source before trusting them
• A free spreadsheet (Google Sheets, or any free spreadsheet)
• One approved chatbot

Ways of working

• record-and-post
• adjust-and-report
• analyze-and-explain

Procedure

1. Read Dataset L in Part 2 twice. For each fact, write one line in your own words saying whether it is about running the shop, about long-lived assets, or about owners and lenders. Check: Thirteen short lines, each naming one of the three kinds of activity.
2. Open a new sheet and copy the operating table from Part 4. Enter net income, then each adjustment with its sign, a positive number for an amount added and a negative number for an amount subtracted, and write the reason beside it. Total the column with a SUM formula. Tool: A free spreadsheet (Google Sheets, or any free spreadsheet). Check: Each adjustment carries a sign and a reason, and the column total is computed by formula.
3. On a second tab, copy the investing and financing table. Enter each line with its sign, total each section with a SUM formula, and add the three section totals and the beginning cash with a formula to reach the ending cash. Tool: A free spreadsheet (Google Sheets, or any free spreadsheet). Check: Each section has its own total, and the net increase plus the beginning cash gives the ending cash.
4. On a third tab, copy the ratio table. Compute each ratio with a division formula, write the two percentages as percents, and write one plain sentence for each ratio that describes the shop without calling the figure good or bad. Tool: A free spreadsheet (Google Sheets, or any free spreadsheet). Check: Four ratios, each computed by formula and read in one plain sentence.
5. Answer the analysis questions in Part 5, including the plain sentence that says what the statement of cash flows shows. Check: Written answers to all five questions.
6. Paste your three tables and then the Part 6 prompt into one approved chatbot. Compare every line, every total, and every claim about a standard or a rate with your own work and with Chapter 15, and write the critique report, or complete the equivalent route instead. Tool: One approved chatbot. Check: A three-to-five-sentence report that quotes at least two of the chatbot's slips and corrects each by hand, or the marked-up equivalent-route analysis.

Fallback route

When to use it: Use this route if you cannot open a spreadsheet or print the tables.

Copy the three tables by hand onto paper or into any text file, read Dataset L from this page, compute each line, total, and ratio by hand, add each column twice, and complete every analysis question and the critique step in the same order. Submit a photo or scan of the paper, or the text file, for equal credit.

This route earns the same credit as the primary route.

Part 4 — The Scaffold

Build the operating section one line at a time, so every adjustment shows its sign and the reason for it.

Student scaffold table 1

Line	Amount with its sign	Why it is added or subtracted
Net income	69,000	Starting line of the indirect method
Depreciation expense
Gain on sale of equipment
Increase in accounts receivable
Increase in inventory
Decrease in prepaid expenses
Increase in accounts payable
Net cash provided by operating activities

Sort the remaining cash lines into their sections and tie the three section totals to the change in cash.

Student scaffold table 2

Line	Section	Amount with its sign
Purchase of equipment
Sale of equipment
Net cash used by investing activities	Investing
Issuance of common stock
Purchase of treasury stock
Payment of cash dividends
Repayment of a note payable
Net cash provided by financing activities	Financing
Net increase in cash	All three
Cash, end of Year 2

Compute each ratio from the year-end figures and read it in one plain sentence, so each number describes the shop without a verdict.

Student scaffold table 3

Ratio	Computation	Result	One plain sentence
Current ratio
Debt to total assets
Gross margin
Profit margin

Part 5 — Analysis Questions

1. Compute net cash provided by operating activities, each section total, the net increase in cash, and the cash at the end of Year 2, showing each sum and difference.
2. Compute the current ratio, debt to total assets, gross margin, and profit margin, showing each division, and give the book value of the equipment the shop sold.
3. Describe why depreciation is added back and why the gain is subtracted in the operating section, using the shop's own figures, and say why neither one brings cash into the shop.
4. Write one plain sentence saying what the statement of cash flows shows. Then say in words how the operating section would change if the shop had used an accelerated depreciation method with a larger Year 2 depreciation expense, everything else held the same, without calling either method better.
5. Choose one reflection: (a) which line did your first instinct sign the wrong way, and what changed your mind? or (b) name one thing the statement of cash flows and the four ratios cannot tell a lender about the shop, and one figure a lender might ask about next.

Part 6 — AI-Critique Moment

Choose one equal-credit critique route. Route A: ask an approved AI tool to critique your completed work, then check its response against your own evidence. Route B is the no-AI equivalent printed below.

Approved tools: Claude, Gemini, ChatGPT, Grok, Microsoft Copilot.

Prompt to paste:

I've pasted my completed operating section, investing and financing table, and ratio table above. Here is an illustrative bicycle shop organized as a corporation. In Year 2 its net income was $69,000 and its depreciation expense was $12,000. It sold old equipment for $7,000 at a $2,000 gain and bought new equipment for $40,000. During the year its accounts receivable rose by $3,000, its inventory rose by $5,000, its prepaid expenses fell by $1,000, and its accounts payable rose by $2,000. It issued 5,000 shares of $1-par common stock at $9 a share, bought back 1,000 of its own shares at $10 a share, paid $7,000 of cash dividends, and repaid a $20,000 note payable. Its cash was $22,000 at the start of Year 2. At the end of Year 2 it had current assets of $100,000, current liabilities of $40,000, total liabilities of $60,000, and total assets of $200,000; its net sales were $690,000 and its gross profit $276,000. Please prepare the statement of cash flows by the indirect method, write the journal entries for the stock issue and the treasury stock purchase, and compute the current ratio, debt to total assets, gross margin, and profit margin. Then tell me whether the shop's cash rose by its net income, whether the rise in accounts receivable should be added back, whether the decrease in prepaid expenses needs an adjustment, which GAAP rule requires the indirect method, what the $12,000 of depreciation says about the equipment's value, which section the dividend belongs in, what Social Security rate and wage base apply to the shop's mechanic in 2026, and whether the shop could use LIFO for its bicycles under IFRS.

Test the response for these likely failures:

• Chatbots sometimes write the treasury stock purchase backwards, debiting Cash and crediting Treasury Stock, as if the shop had sold shares.
• Chatbots sometimes write the stock issue as debit Cash 45,000 and credit Common Stock 5,000, leaving the amount above par out of the entry.
• Chatbots sometimes say the shop's revenue should count only the cash customers paid, so the $3,000 rise in accounts receivable should be added back.
• Chatbots sometimes say prepaid expenses were an expense in the year they were paid, so the $1,000 decrease in prepaid expenses needs no adjustment.
• Chatbots sometimes miscount the operating section, for example adding the gain back and reporting $78,000.
• Chatbots sometimes claim that a GAAP rule requires every business to use the indirect method.
• Chatbots often quote an earlier year's Social Security wage base when asked about the mechanic's wages.
• Chatbots sometimes say a business reporting under IFRS may choose LIFO for the inventory behind the $5,000 increase.
• Chatbots sometimes say the shop's cash rose by $69,000 because it earned $69,000 of net income.
• Chatbots often describe the $12,000 of depreciation as the drop in what the equipment would sell for, or as cash the shop set aside.
• Chatbots sometimes put the $7,000 dividend payment in operating activities, as if it were a cost of running the shop.

Write three to five sentences naming what the chatbot got right and at least two places where it slipped into one of the failures above, quoting its words and correcting each by hand against Dataset L, Chapter 15, and the pinned source.

Equivalent route (no AI required)

No AI account is required for this workshop. This route assesses the same objectives, Objective 9 (prepare a statement of cash flows by the indirect method, compute and interpret basic financial ratios, and read a public company's annual report), Objective 5 (account for merchandising operations and inventory: record purchases and sales in a perpetual system, compute cost of goods sold and gross profit, and apply FIFO, LIFO, and weighted-average costing and the lower of cost and net realizable value), and Objective 4 (complete the accounting cycle: prepare an income statement, a statement of retained earnings, and a classified balance sheet, journalize closing entries, and prepare a post-closing trial balance), takes comparable effort of about the same 90 minutes, uses the same rubric, and earns the same credit. Instead of the chatbot, critique this flawed analysis of Dataset L, printed here in full: "Net cash from operations is 69,000 + 12,000 + 2,000 + 3,000 − 5,000 + 1,000 + 2,000 = $84,000, because the gain brought in cash and the rise in receivables means more money is coming. The $1,000 decrease in prepaid expenses needs no adjustment, since the prepayment was an expense in the year it was paid. The $7,000 dividend is an operating cost. The stock issue is debit Cash 45,000 and credit Common Stock 5,000, and the treasury stock purchase is debit Cash 10,000 and credit Treasury Stock 10,000. GAAP requires every business to use the indirect method. The $12,000 of depreciation shows the equipment lost $12,000 of resale value. Because the shop earned $69,000, its cash rose by $69,000. The current ratio is 40,000 ÷ 100,000 = 0.4, which is bad. The mechanic's wages carry Social Security at 6.2 percent on wages up to a $176,100 wage base, and under IFRS the shop could choose LIFO for its bicycles." Mark every error you find, name the failure it shows, and correct it by hand against Dataset L, Chapter 15, and the pinned source; find at least two. The wage base in it is out of date on purpose and is itself one of the errors. Submit the marked-up analysis with your corrections in place of the chatbot report and share link.

Part 7 — What to Submit

• The completed operating table, investing and financing table, and ratio table from Part 4
• Written answers to all five analysis questions
• The chatbot critique report with its share link, or the equivalent route's marked-up flawed analysis

Deliverable:

A short Accounting Workshop report on the bicycle shop's Year 2 cash: three completed tables (the operating section, the investing and financing lines tied to cash, and the four ratios), written answers to five analysis questions, and a critique of a chatbot's version of the same work, or, on the equivalent route, a marked-up correction of the printed flawed analysis. Choose how you show it: a completed spreadsheet with written answers, a recorded explanation with a transcript, or hand-drawn tables with short notes; every form is graded by the same scoring criteria. Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

Rubric

The rubric below shows how each submitted part is evaluated; bands are full, partial, or none.

Workshop evaluation criteria

Criterion	Full	Partial	None
Operating section, signed and reasoned	Every adjustment has the right amount and sign with its reason, depreciation is added back, the gain is subtracted, and the column totals to net cash provided by operating activities.	Most adjustments are right, or all are present but one sign is reversed or a reason is missing.	Fewer than half the adjustments are right, or net income is reported as the operating cash.
Investing and financing sorted and tied to cash	Every line sits in the right section with its sign, each section is totaled, the dividend is in financing, and the net increase plus the beginning cash equals the ending cash.	The sections are mostly right but one line is misplaced or one total is wrong, or the tie to the ending cash is missing.	No sorting, or lines listed with no sections or totals.
Ratios read in plain sentences and the effect of a different choice	All four ratios are computed and each is read in one plain sentence without a verdict, and the answer says in words that a larger depreciation expense lowers net income but leaves operating cash the same, without ranking either method.	The ratios or the effect of the other method is present, but not both, or one ratio is called good or bad.	Neither the ratio readings nor the effect of the other method is present.
Caught-and-corrected AI slip, on either route	The chatbot critique report, or the equivalent route's marked-up flawed analysis, quotes at least two errors and corrects each by hand against Dataset L, Chapter 15, and the pinned source; either route earns this band equally.	One error is quoted and corrected on either route, or errors are named without a correction.	No critique on either route, or chatbot output is pasted without checking it.
Add-back reasoning and reflection	The answers explain why depreciation is added back and the gain subtracted without either bringing in cash, give the book value of the equipment sold, and answer the chosen reflection option with a specific line or figure from Dataset L.	Either the add-back reasoning or the reflection is present, but not both, or one is general.	Neither the add-back reasoning nor the reflection is present.

Quality Gate

• Every operating adjustment carries the sign the indirect method gives it, with its reason.
• The dividend payment sits in financing activities, and the three section totals tie to the change in cash from the beginning to the end of Year 2.
• Every line, total, and ratio is computed by formula or written as a sum, difference, or division.
• No standard, rule, rate, statistic, or quotation is invented anywhere in the submission.
• Every ratio is read in one plain sentence that describes the shop and calls no figure good or bad.
• The critique quotes the chatbot or the flawed analysis and corrects at least two errors by hand.