1.
Statement of
Direct method: This method uses the basis of cash for preparing the cash flows 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.
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 |
Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.
| Cash flows from investing activities |
| Add: Proceeds from sale of fixed assets |
| Sale of marketable securities / investments |
| Interest received |
| Dividend received |
| Deduct: Purchase of fixed assets/long-lived assets |
| Purchase of marketable securities |
| Net cash provided from or used by investing activities |
Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.
| Cash flows from financing activities |
| Add: Issuance of common stock |
| Proceeds from borrowings |
| Proceeds from issuance of debt |
| Deduct: Payment of dividend |
| Repayment of debt |
| Interest paid |
| Redemption of debt |
| Net cash provided from or used by financing activities |
To Prepare: Statement of cash flows under direct method.
2.
To Analyze: The statement of cash flows to get help for evaluating an investment.
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Chapter 14 Solutions
Horngren's Financial & Managerial Accounting (5th Edition)
- We note the following adjusted trial balance totals: Cash $ 21,000 Accounts Receivable $ 20,000 Allowance for Doubtful Accounts $2,000 Merchandise Inventory $ 20,000 Accounts Payable $16,000 Capital $ 3,000 Sales Sales Returns Cost of Goods Sold Other Expenses Gross profit is: a. $56,000 b. $50,000 c. $80,000 d. $74,000 $ 80,000 $ 6,000 $ 24,000 $ 10,000arrow_forwardcorrect answer please general accountingarrow_forwardSolution want to this general account questionsarrow_forward
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