IAS 7 Statement of cash flows allows entities to present cash flow from operatingactivities, using either indirect method or direct method.a. Explain why and how the following are adjusted when preparing the statement ofcash flows following the indirect method• Depreciation/amortisation• Profit/loss on disposal• Interest receivable/investment income• Finance costs• Change in receivable• Change in inventory• Change in payables.b. The statement of cash flows is an important part of the financial statements.Outline the importance of statement of cash flows

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A reader of a statement of cash flows wishes to analyze the major classes of gross cash receipts and gross cash payments from operating activities. Which methods of reporting cash flows from operating activities will supply that information? Both the direct and indirect methods. Only the direct method. Only the indirect method. Neither method.
Determine cash flows from operating activities by the direct method.
Cash Flows from (Used for) Operating Activities The net income reported on the income statement for the current year was $73,600. Depreciation recorded on store equipment for the year amounted to $27,400. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: Cash Accounts receivable (net) Merchandise inventory Prepaid expenses Accounts payable (merchandise creditors) Wages payable End of Year $23,500 56,000 35,500 4,750 21,800 4,900 Beginning of Year $18,700 48,000 40,000 7,000 16,800 5,800 a. Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash outflows, cash
When using the indirect method of determining net cash flows from operating activities, how are revenues and expenses reported on the statement of cash flows if their cash effects are identical to the amounts reported in the income statement?
Effects of all cash flows affect the balances of various accounts reported in the balance sheet. Also, the activities that cause some of these cash flows are reported in the income statement. What, then, is the need for an additional financial statement that reports cash flows?
What are the key steps in preparing the Statement of Cash Flows, using the indirect method? What are the advantages of using the indirect method for reporting cash flows from operating activities?
Using the following answer keys, you are to identify in which activity each of the transactions is classified and its effect on cash flows. Cash Flow Classification.using the capital letter only: . .Operating Activity • L.Investing Activity • F..Financing Activity • OL.Operating and Investing Activity • N.Noncash Transaction Effect on Cash Flows.using the capital letter only: • .Increase • D.Decrease N.No Effect Transaction Cash Flow Classification Effect on Cash Flows Paid a cash dividend. Decreased accounts receivable. Increased inventory. Retired long-term debt with cash. Sold long-term securities at a loss. Issued stock for equipment. Decreased prepaid insurance. Purchased treasury stock with cash. Retired a fully depreciated truck (no gain or loss). Transferred cash to money market account.
3. Using the following answer keys, you are to identify in which activity each of the transactions is classified and its effect on cash flows. Cash Flow Classification...using the capital letter only: O...Operating Activity I...Investing Activity F...Financing Activity OI...Operating and Investing Activity N...Noncash Transaction Effect on Cash Flows...using the capital letter only: I...Increase D...Decrease N...No Effect Transaction Cash Flow Classification Effect on Cash Flows Declared and paid a cash dividend. Sold short-term trading securities at a gain. Retired fully depreciated equipment. Sold a machine at a loss. Purchased long-term available-for-sale securities. Decreased accounts receivable. Purchased 90-day Treasury bill. Incurred a net loss. Declared and issued a stock dividend. Sold treasury stock.
Intermediate Accounting 105 What is the purpose of a statement of cash flows? How does it differ from a balance sheet and an income statement? Please provide GAAP concept and own explanation / example.
Which of the following sections of the statement of cash flows include activities that increase and decrease long-term assets? the investing activities section Should not be reported on cash flow statement OO the financing activities section the operating activities section
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What are the key steps in preparing the Statement of Cash Flows, using the indirect method?

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