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.
- A. Cash Receipts: It encompasses all the cash receipts from sale of goods and on account receivable.
- B. 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.
- Deduct the amount of cash used to purchase any fixed assets.
- Add the amount of cash received from sale of any fixed asset.
Cash flow from financing activities: This section of cash flows statement provides information about the
- Add the amount of cash received from any sources of finance.
- Deduct the amount of cash used for payment for dividend and interest from financing activities.
- Deduct the amount of cash used for payment of
treasury stock from financing activities.
To Prepare: Statement of cash flows of G Incorporation using direct method.
Answer to Problem 12.10AP
G Incorporation | |||
Statement of Cash Flows– Direct Method | |||
For the year ended 2017 | |||
Particulars | Amount ($) | Amount ($) | |
Cash flows from operating activities: | |||
Collections from customers(1) | 338,660 | ||
Deduct: Payments to suppliers(2) | 110,410 | ||
Payment for operating expense(3) | 19,310 | ||
Payment for income taxes | 27,280 | ||
Payment for interest expense | 4,730 | ||
Total Payments | (161,730) | ||
Net cash provided by operating activities | 176,930 | ||
Cash flows from investing activities: | |||
Sale of plant assets | 1,500 | ||
Purchase of investment | (29,000) | ||
Purchase of plant assets | (100,000) | ||
Net cash used for investing activities | 127,500 | ||
Cash flows from financing activities: | |||
Issuance of common stock | 45,000 | ||
Redemption of bonds payable | (36,000) | ||
Payment of cash dividends | (26,030) | ||
Net cash used for financing activities | (17,030) | ||
Net increase (decrease) in cash | 32,400 | ||
Cash balance, December 31, 2016 | 48,400 | ||
Cash balance, December 31, 2017 | 80,800 |
Working notes:
Calculate the cash received from customers as follows:
Calculate the amount of cash paid to suppliers as follows:
Calculate cash payment for operating expenses as follows:
The increase or decrease in
Schedule of change in assets and liabilities | ||||
Account Titles | Amount ($) | |||
2017 | 2016 |
Increase / (Decrease) | Indicate | |
Investment | 109,000 | 138,000 | 29,000 | Purchase of investment |
Common stock | 220,000 | 175,000 | 45,000 | Issue of common stock |
Bonds payable | 110,000 | 146,000 | (36,000) | Decrease in redemption of bonds payable |
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 shareholders’ equity items.
Hence, Net increase in cash balance during the period is $32,400.
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