Chapter 12, Problem 12SP

To determine

Statement of cash flows:

The statement of cash flow is a financial statement, which provides a summary of actual or anticipated cash inflow and cash outflow in a firm over an accounting period. It determines the net changes in cash through reporting the sources and uses of cash due to operating, investing, and financial activities of a company.

The cash flow statement is categorized into three parts as follows:

► Cash flow from operating activities: All those activities that are related to production, sales, and delivery of an organization’s product or service and collection of payments from customers come under this category. For example: Losses, gains, purchase of raw material, inventory, depreciation, and advertising.

► Cash flow from investing activities: When an organization purchases or sells any asset, then whatever cash comes in or goes out are reported under this head of the cash flow statement. If any loan is made to a supplier or received from a customer then, it would be reported in it and if a merger or acquisition exists there, then all the payments related to it would also be recorded in it.

► Cash flow from financing activities: The inflow of cash from investors like bank and shareholders and outflow to shareholders in the form of dividends is recorded under this head of the cash flow statement. All those activities that affect the long-term liabilities or equity of the organization will also be reported under this head.

To prepare: The cash flow statement using the direct method.