FINANCIAL ACCT.FUND(LL)W/ACCESS>CUSTOM<
FINANCIAL ACCT.FUND(LL)W/ACCESS>CUSTOM<
6th Edition
ISBN: 9781260255119
Author: Wild
Publisher: MCG CUSTOM
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Chapter 12, Problem 16E
To determine

Prepare the cash provided or used by operating activities section of the statement of cash flows for S Company

Expert Solution & Answer
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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, 2017
DetailsAmount ($)Amount ($)
Cash flows from operating activities:  
Receipts:  
Collections from customers1,797,500 
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.

CashreceiptsfromCustomers]=Salesrevenue (+Decrease in Accounts ReceivableORIncrease in Accounts Receivable)= Sales Revenue Increase in Accounts Receivable=$1,828,000$30,500=$1,797,500

Calculate the amount of cash payments to suppliers.

(Cashpaid to suppliers)=Cost of Goods Sold (+Decrease in Accounts Payable/Increase in InventoryORIncrease in Accounts Payable /Decrease in Inventory)=(Cost of goods sold + Decrease in accounts payable + Increase in inventory)=$991,000+$12,500+$25,000=$1,028,500

Calculate the amount of cash paid for salaries expenses:

(Cash paid for salaries expenses)=Salaries expenses(+Decrease in salaries payableORIncrease in salaries payable)=(Salaries expenses + Decrease in income tax payable)=($245,535 + $3,500)=$249,035

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Chapter 12 Solutions

FINANCIAL ACCT.FUND(LL)W/ACCESS>CUSTOM<

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