
Concept Introduction:
Cash flow statement:
Cash flow statement is one of the financial statements which shows the
When cash receipts and cash payments are used for calculating cash flow from operating activities, this method is termed as direct method.
To prepare:
Cash flow statement using direct method

Answer to Problem 3GLP
Solution:
The cash flow from statement using direct method −
Golden Corp. | ||
Statement of cash flows | ||
FOR THE year ended December 31, 2015 | ||
| | |
Particulars | Amount ($) | Amount ($) |
Cash flows from operating activities | | |
Receipts: | ||
Cash receipts from customers | 1,780,000 | |
Payments: | ||
Cash paid for merchandise | 1,145,000 | |
Cash paid for other expenses | 494,000 | |
Cash paid for income taxes | 19,000 | |
Total cash payments | (1,658,000) | |
Net cash provided by operating activities | 122,000 | |
| | |
Cash flows from investing activities | | |
Cash paid for equipment purchase | (36,000) | |
Net cash used in investing activities | (36,000) | |
| | |
Cash flows from financing activities | | |
Cash received from issuing stock | 60,000 | |
Cash paid for dividends | (89,000) | |
Net cash used in financing activities | (29,000) | |
| | |
Net increase in cash | 57,000 | |
Beginning cash balance | | 107,000 |
Ending cash balance | 164,000 |
Explanation of Solution
- Cash flow from operating activities- First, the receipts are calculated.
Cash receipts from customers
- Sales for the year = $ 1,792,000
Accounts receivables for 2014 = $ 71,000- Accounts receivables for 2015 = $ 83,000
Next, cash payments for the year will be calculated.
There are three cash payments during the year related to operating activities-
- Cash paid for merchandise
- Cash paid for other expenses
- Cash paid for income taxes These payments will be calculated as under-
Cash paid for merchandise
Given,
- Cost of goods sold = $1,086,000
- Accounts payables for 2014 = $71,000
- Accounts payables for 2015 = $87,000
- Inventory for 2014 = $526,000
- Inventory for 2015 = $601,000
- Cash paid for other expenses
- Other expenses = $494,000
- Cash paid for income taxes
- Income tax = $22,000
- Income taxes payable for 2014= $25,000
- Income taxes payable for 2015=$28,000
Now, the total cash payments will be calculated as under −
Now, cash flow from operating activities will be calculated as −
The cash flow from operating activities = $122,000.
- Cash paid for equipment purchase = $36,000 The cash used in investing activities = ($36,000).<
Given,
- Cash paid for dividends= $89,000
Now, cash flow from financing activities will be calculated as −
The cash used in financing activities = ($29,000).
Now, we need to calculate net increase/ (decrease in cash)-
Last step is to calculate Ending cash balance-
Given,
- Cash balance for 2014=$107,000
Thus, cash flow statement using direct method has been prepared.
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Chapter 16 Solutions
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