Fundamental Accounting Principles
Fundamental Accounting Principles
23rd Edition
ISBN: 9781259536359
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 16, Problem 8APSA
To determine

Introduction: Cash Flow Statement is an important part of the Financial Statements of an enterprise. It shows the inflow and outflow of Cash during a particular period. It is an analytical tool to check the short term ability of a company to pay its coming liabilities. It comprises of three activities called Operating Activities, Investing Activities and Financing Activities.

Operating activity is the most important section of the Statement of Cash Flows. It depicts the Cash Inflows and Outflows with respect to the day-to-day operations of the enterprise. Here, Cash Inflows are cash receipts from customers for sale of merchandise inventory or services and Cash Outflows are payments for purchase of merchandise inventory or operating expenses. As per IFRS, Interest & Dividend incomes, Interest & Dividend payments can also be included in operating activities.

Operating Activities can be reported using any of the following methods:

1. Indirect Method: It starts from Net Income and adjusts it to arrive at net cash provided by operating activities.

2. Direct Method: It shows directly the cash receipts and payments from operations of the business. Some T-accounts are prepared in this method to arrive at the cash flows.

Investing Activity shows the inflow and outflow of Cash due to sale or purchase of Assets and/or Investments. Example: Purchase of Fixed Asset, Sale of Investments.

Financing Activity shows flow of Cash from Issuance or buy-back of Shares, redemption of debentures etc.

To State:

Cash Flow Statement of Golden Corporation using Direct Method for the year ending December 31, 2017.

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Fundamental Accounting Principles

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The KEY to Understanding Financial Statements; Author: Accounting Stuff;https://www.youtube.com/watch?v=_F6a0ddbjtI;License: Standard Youtube License