Concept explainers
Statement of cash flows:
Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.
Cash flows from operating activities:
These refer to the cash received or cash paid in day-to-day operating activities of a company.
Direct method: This method uses the basis of cash for preparing the cash flows of statement.
Cash flows from operating activities: In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.
- Cash Receipts: It encompasses all the cash receipts from sale of goods and on account receivable.
- Cash Payments: It encompasses all the cash payments that are made to suppliers of goods and all expenses that are paid.
Cash flow from investing activities:
This section of cash flows statement provides information concerning about the purchase and sale of capital assets by the company.
Cash flow from financing activities:
This section of cash flows statement provides information about the
To prepare: The cash flow statement of Incorporation V for the year ended December 31, 2018.
Answer to Problem 11.7AP
The cash flow statement of Incorporation V for the year ended December 31, 2018 is as follows:
Incorporation V | ||
Statement of cash flow- Direct method | ||
For the year ended December 31, 2018 | ||
$ | $ | |
Cash flows from operating activities: | ||
Cash collection: | ||
Cash collection from customer (2) (A) | 36,14,000 | |
Cash Payments: | ||
Cash paid to supplier (4) | 24,26,000 | |
Cash paid for income tax (5) | 57,000 | |
Cash paid for interest (6) | 25,000 | |
Operating expenses (3) | 9,65,200 | |
Total Cash Payments (B) | 34,73,200 | |
Net cash provided by operating activities
| 1,40,800 | |
Cash flows from investing activities: | ||
Sale of land | 31,000 | |
Purchase of Investments | (1,15,000) | |
Net cash used for investing activities | (84,000) | |
Cash used in financing activities: | ||
Payment of dividends | (30,000) | |
Net cash provided by financing activities | (30,000) | |
Net increase (decrease) in cash | 26,800 | |
Beginning Cash balance | 2,27,800 | |
Ending Cash balance | 2,54,600 | |
Schedule of non-cash transaction: | ||
Purchase of Equipment by issuing notes payable | $70,000 |
Table (1)
Explanation of Solution
The net cash provided by operating activities is calculated by deducting all cash payments incurred in the operating of the business from all cash receipts from the operating activities of the business. Here, cash receipt includes cash receipts from customers. Cash payments include all cash payments made to suppliers and operating activities.
Cash flow from investing activities is calculated by accounting for inflows and outflows of changes in investments and long terms assets.
Cash flow from financing activities is calculated by accounting for inflows and outflows of changes in long term liabilities and
Working note:
1. Calculate the increase or decreases of current assets and current liabilities:
Schedule in the changes of assets and liabilities | |||
Details | Amount | ||
2018 | 2017 | Increase/ (decrease) | |
| 92,000 | 70,000 | 22,000 |
Inventory | 1,05,000 | 1,45,000 | -40,000 |
Prepaid rent | 14,400 | 7,200 | 7,200 |
Accounts payable | 75,000 | 91,000 | -16,000 |
Interest payable | 7,000 | 12,000 | -5,000 |
Income tax payable | 16,000 | 15,000 | 1,000 |
Table (2) (1)
2. Calculate the amount of cash receipt from customer:
3. Calculate the amount of cash paid for operating expense:
4. Calculate the amount of cash paid to the suppliers:
5. Calculate the amount income tax expense:
6. Calculate the amount cash payment for interest expense:
Therefore, the net increase in cash of Incorporation V for the year ended December 31, 2018 is $26,800.
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Chapter 11 Solutions
FINANCIAL ACCOUNTING W/ACCESS >CI<
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