For this simplified direct-method model, classify customer collections, wages and rent as operating; equipment cash purchases and sales as investing; owner contributions, borrowing, principal repayments and withdrawals as financing. Add signed subtotals, then add opening cash. Equipment obtained entirely by signing a note has no cash inflow or outflow at that time: describe the noncash investing/financing event separately instead of inventing cash movements.
Worked example
Separate example: opening cash 90; operating -12, investing -20 and financing +7 give a cash change of -25. Closing cash is 65, still positive. Equipment obtained entirely for a 40 note changes equipment and debt, not these cash totals. Negative cash flow does not mean a negative closing balance.
Paper Compass Studio / August 1-31
Opening cash: 120 fictional dollars. August cash events: collect 65 from customers; pay wages 70 and rent 20; buy equipment for 40; sell other equipment for 10 cash; receive owner contribution 10; borrow 30; repay loan principal 20; owner withdraws 5. Separately, obtain additional equipment for 60 entirely by signing a note; no cash is paid or received for it. These are all cash movements; no taxes, interest, dividends, cash equivalents or currency changes apply. Equipment is for use, not resale stock. Use only these invented records.