Situation A: A company has revenues of P200,000 and operating expenses of P110,000 in its 1st year of operations, 2019. For the purpose ignore income taxes.Accounts receivable and accounts payable at year end were P71,000 and P29,000, respectively. Assume that the accounts payable related to operating expenses. Using the direct method, compute net cash provided by operating activities. Situation B:Cost of goods sold were at P310,000 and operating expenses (exclusive of depreciation) P230,000. The comparative balance sheet for the year shows that inventory increased P26,000, prepaid expenses decreased P8,000, accounts payable (related to merchandise) decreased P17,000, and accrued expenses payable increased P11,000. Compute (a) cash payments to suppliers and (b) cash payments for operating expenses.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![**Financial Activities Computation: Examples and Exercises**
**Situation A: Direct Method for Computing Net Cash Provided by Operating Activities**
A company has revenues of ₱200,000 and operating expenses of ₱110,000 in its first year of operations in 2019. For the purpose of this example, we will ignore income taxes.
- Accounts receivable at the year-end: ₱71,000
- Accounts payable at the year-end: ₱29,000
Assuming that the accounts payable are related to operating expenses, compute net cash provided by operating activities using the direct method.
**Solution:**
1. Compute Operating Cash Receipts:
\[
\text{Operating Cash Receipts} = \text{Revenues} - \text{Increase in Accounts Receivable}
\]
\[
\text{Operating Cash Receipts} = ₱200,000 - ₱71,000 = ₱129,000
\]
2. Compute Cash Payments for Operating Expenses:
\[
\text{Cash Payments for Operating Expenses} = \text{Operating Expenses} - \text{Increase in Accounts Payable}
\]
\[
\text{Cash Payments for Operating Expenses} = ₱110,000 - ₱29,000 = ₱81,000
\]
3. Compute Net Cash Provided by Operating Activities:
\[
\text{Net Cash Provided by Operating Activities} = \text{Operating Cash Receipts} - \text{Cash Payments for Operating Expenses}
\]
\[
\text{Net Cash Provided by Operating Activities} = ₱129,000 - ₱81,000 = ₱48,000
\]
**Situation B: Computation of Cash Payments to Suppliers and for Operating Expenses**
The cost of goods sold is ₱310,000, and operating expenses (exclusive of depreciation) amount to ₱230,000.
The comparative balance sheet for the year shows:
- Inventory increased by ₱26,000
- Prepaid expenses decreased by ₱8,000
- Accounts payable (related to merchandise) decreased by ₱17,000
- Accrued expenses payable increased by ₱11,000
**a) Compute Cash Payments to Suppliers (for merchandise):**
1. Compute the total cost of merchandise:
\[
\text{Cost of Goods Sold} + \](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe79b3c76-60f2-4951-b541-e887d9c063e3%2F8954e3e6-710a-41e7-8997-7a6c9530a7b2%2Fhy03qp_processed.jpeg&w=3840&q=75)
Step by step
Solved in 2 steps
