
Concept explainers
Prepare the cash provided or used from operating activities using direct method.

Explanation of Solution
Statement of
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.
C Incorporation | ||
Statement of Cash Flows- Direct Method (Partial) | ||
For the year ended December 31, 2017 | ||
Details | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Cash receipt from customer | 498,000 | |
Less: Cash payments: | ||
Payment for inventory | 310,000 | |
Payment for other expenses | 86,300 | |
Payment for taxes | 18,500 | 414,800 |
Net cash provided by operating activities | $83,200 |
Table (1)
Working notes:
The amount of cash receipts from customers.
Step 1: Calculate the change in
Step 2: The Calculate the amount of cash receipts from customers.
Determine the cash paid for other expenses during 2017.
Step 1: Calculate the change in wages payable and prepaid expenses:
Schedule in the changes of assets and liabilities | |||
Particulars | Amount | ||
Current year (December 31, 2017) (1) |
Previous year (December 31, 2016) (2) |
Increase/ | |
Wages payable | $9,000 | $5,000 | $4,000 |
Prepaid expense | $5,400 | $4,200 | $1,200 |
Table (2)
Step 2: The Calculate the amount of cash paid for other expenses
Calculate the amount of cash paid for income taxes:
Step 1: Calculate the change in income taxes:
Step 2: The Calculate the amount of cash paid for income taxes.
Hence, the cash provided or used from operating activities using direct method is $83,200.
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