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Chapter 14, Problem 14.23EX
To determine

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

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.

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.

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.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Direct method)
Add: Cash receipts.
Cash receipt from customer
Less: Cash payments:
To supplier
For operating expenses
Income tax expenses
Net cash provided from or used by operating activities

Table (1)

To Prepare: The cash flows from operating activities section of the statement of cash flows using direct method.

Expert Solution & Answer
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Answer to Problem 14.23EX

R Company
Statement of Cash Flows - Direct Method (Partial)
Year Ended June 30
Details Amount ($) Amount ($)
Cash flows from operating activities:
Add: Cash receipt:
                   Cash received from customers 440,440
Total cash receipt   440,440
Less: Cash payments:
                     Cash payment for merchandise (161,260)
                     Cash payment for operating expenses (115,720)
                     Cash payment for income taxes (39,600)
Total cash payments   (316,580)
Net cash provided by operating activities $123,860

Explanation of Solution

Working notes:

Calculate the amount of cash received from customers:

(Cash received from customers)=[Salesrevenue (+Decrease in Accounts ReceivableORIncrease in Accounts Receivable)]=(Salesrevenue  Increase in Accounts Receivable)=($445,500$5,060[31,24036,300])=$440,440

Calculate the amount of cash paid for merchandise:

Cash paid for merchandise=[Cost of Goods Sold (+Decrease in Accounts Payable/Increase in InventoryORIncrease in Accounts Payable /Decrease in Inventory)]=(Cost of goods sold  Increase in Accounts Payable +Increase in Inventory)={$154,000$4,840[$62,70067,540]+$12,100[$80,300$92,400]}=$161,260

Calculate the amount of cash paid for operating expenses:

Cash paid for operating expenses}=[Operating expenses other than depreciation (+Decrease in accrued expense payableIncrease in prepaid expensesORIncrease in accrued expensetax payableDecrease in prepaid expenses)]=(Operating expenses other than depreciation+ Decrease in accrued expense payableDecrease in prepaid expenses)=($115,280+$1,760[$20,900$19,140]$1,320[$15,840$14,520])=$115,720

Conclusion

Therefore, the net cash provided by operating activities under direct method is $123,860.

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Chapter 14 Solutions

Bundle: Financial & Managerial Accounting, Loose-leaf Version, 13th + CengageNOWv2, 1 term (6 months) Printed Access Card Corporate Financial ... Access Card for Managerial Accounting, 13th

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