Chapter 11, Problem 11.8AP

To determine

Statement of cash flows:

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

Cash flows from operating activities:

 These refer to the cash received or cash paid in day-to-day operating activities of a company.

Indirect method of cash flow from operating activities: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.

• Deduct increase in current assets
• Deduct decrease in current liabilities
• Add decrease in current assets
• Add the increase in current liability
• Add depreciation expense and amortization expense
• Add loss on sale of plant assets
• Less gain on sale of plant assets

Direct method: This method uses the basis of cash for preparing the cash flows of statement.

Cash flows from operating activities: In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.

• Cash Receipts: It encompasses all the cash receipts from sale of goods and on account receivable.
• Cash Payments: It encompasses all the cash payments that are made to suppliers of goods and all expenses that are paid.

To Complete: The income statement of R Company.