Explanation Cash Flow Statement: It is a financial statement which gives information about company’s cash inflows and outflows during an accounting year. It tells the cash position of the company and shows from where company generates its cash and how it is used in the business. Indirect Method: This method is easy as it starts with net profit and makes necessary adjustment by converting accrual basis into cash basis. Firm make adjustment by adding back all the non cash expenses like depreciation , provision for losses on accounts receivable and similarly reduce non cash revenues and gains from the net profit. Operating Activities: It is the first part of cash flow statement It focus on inflow and outflow of cash from enterprise main.business operation like purchasing and selling of goods and services. It excludes long-term capital or investment costs. Investing Activities: It is the second part of cash flow statement It focus on cash flow related to purchasing and selling of long term assets of the firm like plant, building, machinery. Financing Activities : It is the third part of cash flow statement It focus on cash flow related to change in size and composition of equity and debt capital of the company like issue of share and debenture, payment of dividend. Following is the cash flow statement using indirect method: Cash flow statement of S Corporation For the year ended 31 st December Cash flow from operating activities Amounts($) Net income 263,161 Adjustment to reconcile net income to net cash provided by operating activities Add: Depreciation expenses 39,525 Add: Loss on disposal of fixed assets 50,000 Add: Bad debt expenses 4,394 Net changes in operating working capital Less: Increase in accounts receivable (17,389) Less: Increase in inventory (1,12,995) Add:: Decrease in prepaid expenses 20,000 Add: Increase in accounts payable 81,557 Add: Increase in tax payable 20,622 Net cash used in operating activities 348,875 Cash flow from investing activities Equipment sold 379,404 Net cash used in investing activities 379,404 Cash flow from financing activities Payment of long term notes (235,255) Issued long term debt 95,257 Cash dividend paid (59,127) Acquired treasury stock (405,000) Net cash used in financing activities (604,125) Increase in cash for the year 124,154 Opening cash balance of cash 145,847 Closing cash balance of cash 270,001 Table (1) So, the cash flow from operating activities after adjusting noncash items and net changes in operating working is $348,875 The cash flow from investing activities is 379,404 and from financing activities is ($604,125). The addition of all these three reflects net increase or decrease in cash. Therefore, net increase in cash is $124,154 which is to be added in opening balance of cash of $145,847. Thus, the net closing balance of cash is $270,001 as on 31 December which is given in the balance sheet. Working Notes: Computation of amount of account receivable is as follows: Account receivable = Opening balance + Bad debts − Closing balance = $ 268 , 363 + $ 4 , 394 − $ 255 , 368 = $ 17 , 389 So, the amount of $17,389 shows increase in accounts receivable

Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition

1st Edition

ISBN: 9780134047430

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Chapter 22, Problem 22.10E

To determine

Cash flow statement for the current year of SC using indirect method.

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Chapter 22, Problem 22.9E

Chapter 22, Problem 22.11E

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Chapter 22 Solutions

Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition

Ch. 22 - Prob. 22.1Q Ch. 22 - Prob. 22.2Q Ch. 22 - Prob. 22.3Q Ch. 22 - Prob. 22.4Q Ch. 22 - Prob. 22.5Q Ch. 22 - How do firms reclassify gains and losses on the...Ch. 22 - Prob. 22.7Q Ch. 22 - Prob. 22.8Q Ch. 22 - Prob. 22.9Q Ch. 22 - Prob. 22.10Q

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