1.
Statement of
Cash flows from operating activities: These are the cash produced by the normal business operations.
Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.
The below table shows the way of calculation of cash flows from operating activities:
| Cash flows from operating activities (Indirect method) |
| Add: Decrease in current assets |
| Increase in current liability |
|
|
| Loss on sale of plant assets |
| Deduct: Increase in current assets |
| Decrease in current liabilities |
| Gain on sale of plant assets |
| 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 |
|
Purchase of |
| Net cash provided from or used by financing activities |
Non-Cash Transaction:
The transaction, which does not involve any cash dealings, is known as non-cash transactions. In these type transactions there will not be any inflow or outflow of cash. Simply put, the transaction, which does not have an impact on the inflow or outflow of cash, is called as non-cash transactions.
Examples of significant non-cash transactions are stated below:
- Issue of common stock to retire long-term debt.
- Purchase of machinery by issuing notes payable
- Issuance of common stock for purchase of land
To Prepare: Statement of cash flows for the year 2016 (Using indirect 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, The Managerial Chapters, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (5th Edition)
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Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning