
Concept explainers
Prepare the cash provided or used by operating activities section of the statement of

Explanation of Solution
Statement of cash flows: Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.
Cash flows from operating activities: Cash flows from operating activity represent the net cash flows from the general operation of the business by comparing the cash receipt and cash payments.
Direct method: The direct method uses the cash basis of accounting for the preparation of the statement of cash flows. It takes into account those revenues and expenses for which cash is either received or paid.
The below table shows the way of calculation of cash flows from operating activities using direct method:
Cash flows from operating activities (Direct method) |
Add: Cash receipts. |
Cash receipt from customer |
Less: Cash payments: |
To supplier |
Interest expense |
For operating expenses |
Income tax expenses |
Net cash provided from or used by operating activities |
Table (1)
The cash flows from operating activities of S Company:
S Corporation | ||
Statement of Cash Flows (partial)-Direct Method | ||
For the Year Ended December 31, 2015 | ||
Details | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Receipts: | ||
Collections from customers | 1,797,500 | |
Total cash receipts | 1,797,500 | |
Payments: | ||
Payment for inventory | (1,028,500) | |
Payment for salaries | (249,035) | |
Payment for rent | (49,600) | |
Payment for utilities | (18,125) | |
Total cash payments | (1,345,260) | |
Net cash provided by operating activities | $452,240 |
Table (2)
Working notes:
The Calculate the amount of cash receipts from customers.
Calculate the amount of cash payments to suppliers.
Calculate the amount of cash paid for salaries expenses:
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