Concept explainers
Statement of cash flows:
It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.
Indirect method:
Under this method, the following amounts are to be adjusted from the Net Incometo calculate the net cash provided from operating activities.
Cash flows from operating activities: These are the cash produced by the normal business operations.
The below table shows the way of calculation of cash flows from operating activities:
Cash flows from operating activities (Indirect method) |
Add: Decrease in current assets |
Increase in current liability |
Depreciation expense and amortization expense |
Loss on sale of plant assets |
Deduct: Increase in current assets |
Decrease in current liabilities |
Gain on sale of plant assets |
Net cash provided from or used by operating activities |
Table (1)
Cash flows from investing activities:
Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.
The below table shows the way of calculation of cash flows from investing activities:
Cash flows from investing activities |
Add: Proceeds from sale of fixed assets |
Sale of marketable securities / investments |
Interest received |
Dividend received |
Deduct: Purchase of fixed assets/long-lived assets |
Purchase of marketable securities |
Net cash provided from or used by investing activities |
Table (2)
Cash flows from financing activities:
Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.
The below table shows the way of calculation of cash flows from financing activities:
Cash flows from financing activities |
Add: Issuance of common stock |
Proceeds from borrowings |
Proceeds from issuance of debt |
Issuance of bonds payable |
Deduct: Payment of dividend |
Repayment of debt |
Interest paid |
Redemption of debt |
Repurchase of stock |
Net cash provided from or used by financing activities |
Table (3)
To Prepare: A statement of cash flows using the indirect method for presenting cash flows from operating activities.
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Financial & Managerial Accounting
- Statement of Cash Flows—Direct Method Lang Company has not yet prepared a formal statement of cash flows for 2016. Following are comparative balance sheets as of December 31, 2016 and 2015, and a statement of income and retained earnings for the year ended December 31, 2016: Required For purposes of a statement of cash flows, are the U.S. Treasury bills cash equivalents? If not, how should they be classified? Explain your answers. Prepare a statement of cash flows for 2016 using the direct method in the Operating Activities section.arrow_forwardStatement of Cash Flows—Direct Method The comparative balance sheet of Canace Products Inc. for December 31, 20Y6 and 20Y5, is as follows: Dec. 31, 20Y6 Dec. 31, 20Y5 Assets Cash $277,770 $258,990 Accounts receivable (net) 100,630 93,020 Inventories 284,060 275,390 Investments 0 106,700 Land 145,700 0 Equipment 313,410 243,490 Accumulated depreciation-equipment (73,370) (65,660) Total assets $1,048,200 $911,930 Liabilities and Stockholders' Equity Accounts payable $189,720 $179,650 Accrued expenses payable 18,870 23,710 Dividends payable 10,480 8,210 Common stock, $10 par 56,600 44,680 Paid-in capital: Excess of issue price over par-common stock 212,780 124,020 Retained earnings 559,750 531,660 Total liabilities and stockholders’ equity $1,048,200 $911,930 The income statement for the year ended December 31, 20Y6, is as follows: Sales $1,566,470 Cost of…arrow_forwardSTATEMENT OF CASH FLOWS An entity provided the following data: December 31, 2017 December 31, 2018 Trade accounts receivable, net of allowance 840,000 780,000 Inventory 1,500,000 1,400,000 Accounts payable 950,000 980,000 Total sales were P12,000,000 for 2018 and P11,000,000 for 2017. Cash sales were 20% of total sales each year. Cost of goods sold was P8,400,000 for 2018. Variable expenses for 2018 amounted to P1,200,000 and varied in proportion to sales. Variable expenses had been paid 50% in the year incurred and 50% the following year. Fixed expenses, including P350,000 depreciation and P50,000 bad debt expense, totaled P1,000,000 each year. Eighty percent of fixed expenses involving cash were paid in the year incurred and 20% the following year. Each year there was a P50,000 bad debt estimate and a P50,000 writeoff. 1. What is the cash collected from customers during 2018? 2. What is the amount of purchases…arrow_forward
- Statement of cash flow for the following: The comparative balance sheet of Whitman Co. at December 31, 20Y2 and 20Y1, is as follows: 1 Dec. 31, 20Y2 Dec. 31, 20Y1 2 Assets 3 Cash $918,000.00 $964,800.00 4 Accounts receivable (net) 828,900.00 761,940.00 5 Inventories 1,268,460.00 1,162,980.00 6 Prepaid expenses 29,340.00 35,100.00 7 Land 315,900.00 479,700.00 8 Buildings 1,462,500.00 900,900.00 9 Accumulated depreciation-buildings (408,600.00) (382,320.00) 10 Equipment 512,280.00 454,680.00 11 Accumulated depreciation-equipment (141,300.00) (158,760.00) 12 Total assets $4,785,480.00 $4,219,020.00 13 Liabilities and Stockholders’ Equity 14 Accounts payable (merchandise creditors) $922,500.00 $958,320.00 15 Bonds payable 270,000.00 0.00 16 Common stock, $25 par 317,000.00 117,000.00 17 Paid-in capital in…arrow_forwardSpreadsheet and Statement of Cash Flows The following information was taken from Lamberson Company's accounting records: Account Balances Account Titles January 1,2016 December 31,2016 Debits Cash $ 1,400 $ 2,400 Accounts Receivable (net) 2,800 2,690 Marketable Securities (at cost) 1,700 3,000 Allowance for Change in Value 500 800 Inventories 8,100 7,910 Prepaid Items 1,300 1,710 Investments (long-term) 7,000 5,400 Land 15,000 15,000 Buildings and Equipment 32,000 46,200 Discount on Bonds Payable — 290 $69,800 $85,400 Credits Accumulated Depreciation $16,000 $16,400 Accounts Payable 3,800 4,150 Income Taxes Payable 2,400 2,504 Wages Payable 1,100 650 Interest Payable — 400 Note Payable (long-term) 3,500 — 12% Bonds Payable — 10,000 Deferred Taxes Payable 800 1,196 Convertible Preferred Stock, $100 par 9,000 — Common Stock, $10 par 14,000 21,500 Additional Paid-in Capital 8,700 13,700 Unrealized Increase in Value of…arrow_forwardStatement of Cash Flows—Indirect Method The comparative balance sheet of Whitman Co. at December 31, 20Y2 and 20Y1, is as follows: Dec. 31, 20Y2 Dec. 31, 20Y1 Assets Cash $ 858,550 $ 923,880 Accounts receivable (net) 781,280 712,600 Inventories 1,184,800 1,090,360 Prepaid expenses 27,470 32,620 Land 295,340 446,450 Buildings 1,365,090 841,380 Accumulated depreciation-buildings (386,350) (360,590) Equipment 480,790 424,980 Accumulated depreciation-equipment (132,220) (148,530) Total assets $4,474,750 $3,963,150 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $ 850,200 $ 897,180 Bonds payable 250,590 0 Common stock, $20 par 295,000 109,000 Paid-in capital: Excess of issue price over par-common stock 708,000 522,000 Retained earnings 2,370,960 2,434,970 Total liabilities and stockholders’ equity $4,474,750…arrow_forward
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- Statement of Cash Flows—Indirect Method The comparative balance sheet of Livers Inc. for December 31, 20Y3 and 20Y2, is shown as follows: Dec. 31, 20Y3 Dec. 31, 20Y2 Assets Cash $277,520 $259,050 Accounts receivable (net) 100,540 93,040 Inventories 283,810 275,480 Investments 0 106,720 Land 145,570 0 Equipment 313,130 243,550 Accumulated depreciation—equipment (73,310) (65,680) Total assets $1,047,260 $912,160 Liabilities and Stockholders' Equity Accounts payable (merchandise creditors) $189,550 $179,700 Accrued expenses payable (operating expenses) 18,850 23,720 Dividends payable 10,470 8,210 Common stock, $10 par 56,550 44,700 Paid-in capital: Excess of issue price over par-common stock 212,590 124,050 Retained earnings 559,250 531,780 Total liabilities and stockholders’ equity $1,047,260 $912,160 Additional data obtained from an examination of the accounts in the…arrow_forwardStatement of Cash Flows—Indirect Method The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows: Dec. 31, 20Y9 Dec. 31, 20Y8 Assets Cash $269,900 $249,630 Accounts receivable (net) 97,780 89,650 Inventories 276,020 265,460 Investments 0 102,840 Land 141,570 0 Equipment 304,530 234,680 Accumulated depreciation—equipment (71,300) (63,290) Total assets $1,018,500 $878,970 Liabilities and Stockholders' Equity Accounts payable $184,350 $173,160 Accrued expenses payable 18,330 22,850 Dividends payable 10,190 7,910 Common stock, $10 par 55,000 43,070 Paid-in capital: Excess of issue price over par-common stock 206,760 119,540 Retained earnings 543,870 512,440 Total liabilities and stockholders’ equity $1,018,500 $878,970 Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:…arrow_forwardcompute the cash ratios for 2018 and 2017 (Round your answers to two decimal places, X.XX.) 2018:? 2017:? here is the data table Ranfield, Inc. Comparative Balance Sheet December 31, 2018 and 2017 2018 2017 2016* Assets Current Assets: Cash $91,000 $90,000 Accounts Receivables, Net 112,000 119,000 $102,000 Merchandise Inventory 148,000 160,000 202,000 Prepaid Expenses 17,000 6,000 Total Current Assets 368,000 375,000 Property, Plant, and Equipment, Net 213,000 174,000 Total Assets $581,000 $549,000 $596,000 Liabilities Total Current Liabilities $223,000 $241,000 Long-term Liabilities 115,000 98,000 Total Liabilities 338,000 339,000 Stockholders' Equity…arrow_forward
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