Explanation Memo From XYZ To RJ, Company E. April 2, 2018 Sub: Operating activities. The financial statement of Company E shows the net income of $5 million. But the net income alone could not be the determinant for the declaration of dividends. Net income is the excess amount of revenuewhich arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company. However the operating activities provide the information about the flow of funds from the business operations. Operating activities refer to the normal activities of a company to carry out the business. And the net cash flow from operating activities is negative for the Company E. As per the GAAP guidelines the net cash flow from operating activities, could be computed either using the direct or the indirect methods as shown below. Cash Flows from Operating activities using Direct Method: Amount in Millions Particulars Amount ($) Amount ($) Cash flows from Operating activities: Cash Inflows: From customers (1) $55 Cash Outflows: To suppliers of goods (2) ($43) For remaining expenses (3) ($28) Net cash flows from operating activities ($16)

GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD

9th Edition

ISBN: 9781260089042

Author: J. David Spiceland

Publisher: McGraw-Hill Education

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Chapter 21, Problem 21.1BYP

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Chapter 21, Problem 21.21P

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GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD

Ch. 21 - Effects of all cash flows affect the balances of...Ch. 21 - Prob. 21.2Q Ch. 21 - Prob. 21.3Q Ch. 21 - Prob. 21.4Q Ch. 21 - Prob. 21.5Q Ch. 21 - Prob. 21.6Q Ch. 21 - Prob. 21.7Q Ch. 21 - The sale of stock and the sale of bonds are...Ch. 21 - Does the statement of cash flows report only...Ch. 21 - Prob. 21.10Q

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Solution Summary: The author explains that the financial statement of Company E shows the net income of 5 million. However, the operating activities provide information about the flow of funds from the business operations.

To Prepare: A memo.

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Chapter 21 Solutions