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1.
Statement of
Direct method: This method uses the basis of cash for preparing the cash flows 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.
The below table shows the way of calculation of cash flows from operating activities:
Cash flows from operating activities (Direct method) |
Add: Cash receipts. |
Cash receipt from customer |
Less: Cash payments: |
To supplier |
For operating expenses |
Income tax expenses |
Net cash provided from or used by operating activities |
Cash flows from investing activities: Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.
Cash flows from investing activities |
Add: Proceeds from sale of fixed assets |
Sale of marketable securities / investments |
Interest received |
Dividend received |
Deduct: Purchase of fixed assets/long-lived assets |
Purchase of marketable securities |
Net cash provided from or used by investing activities |
Cash flows from financing activities: Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.
Cash flows from financing activities |
Add: Issuance of common stock |
Proceeds from borrowings |
Proceeds from issuance of debt |
Deduct: Payment of dividend |
Repayment of debt |
Interest paid |
Redemption of debt |
Net cash provided from or used by financing activities |
To Prepare: Statement of cash flows under direct method.
2.
To Analyze: The statement of cash flows to get help for evaluating an investment.
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Chapter 14 Solutions
Horngren's Financial & Managerial Accounting, The Financial Chapters, Student Value Edition (5th Edition)
- Please answer the following question. In this method, the company compares the amount spent on the investment with the discounted expected future cash inflows. a.Payback b.NRV c.Investment d.IRRarrow_forwardCould you please give me a brief overview of what "cash flow for ROR analysis" is? Thanks.arrow_forwardHello, can you help me analyze the cash flow statement? for operating, investing, and financing.arrow_forward
- Discuss arguments supporting the need for improving the Statement of Cash Flows(SCF). What suggestions do Broom and the authors of the text make regarding improvement?arrow_forwardPrepare a cash flow statement (indirect method) from the given information. Show your solutionsarrow_forwardFinding the present value of future cash flows is called and finding the future value of present cash flows is called O A. analytics, tracking B. capital budgeting, short-term budgeting C. discounting, compounding D. financial ratio analysis, financial statement analysis O E. fundamental analysis, technical analysisarrow_forward
- prepare a cashflow from finanacing activities thnkuarrow_forwardBalance Sheet 3-Dudes, Inc. Liabilities & Owners' Equity: Assets: 2021 2022 $22,000 $18,000 $26,000 $30,000 $28,000 $31,000 $76,000 $79,000 2022 $45,000 $220,000 $195,000Notes Pay $27,000 $292,000 $246,000Total CL 2021 Cash $21,000Accts Pay Accts. Rec. $30,000Other CL Inventories Total CA $600,000 $570,000LT Debt -$210,000 -$190,000Total Liab $390,000 $380,000 $285,000 $250,000 $361,000 $329,000 PP&E Depreciation Net PP&E $80,000 $80,000 Equity $626,000Ret Earn. Total equity Total Liab+EQ $241,000 $217,000 $321,000 $297,000 $682,000 $626,000 Total Assets $682,000 Simplified Income Statement - 2022 3-Dudes, Inc $1,200,000 -$470,000 $730,000 Revenue Cost of Goods Sold Gross Profit Operating Expenses (G&A): Earnings before interest and taxes (EBIT) Interest charges: Earnings before taxes (EBT) Taxes -$260,000 $470,000 -$28,000 $442,000 -$132,600 $309,400 Net Incomearrow_forward1. should the terminal cashflow be used to calculate the net present value of a company? Give reasons for your answer. 2. Calculate the net present value (NPV) with the information in the attached table.arrow_forward
- Please answer the following questions 1. _________________ is the discounted net future cash inflows divided by the initial cash outlay. a.Payback b.NRV c.Profitability Index d.IRR 2. __________________________ serves as a framework for measuring performance. a.NRV b.Payback c.Profitability Index d.Balanced Scorecard 3. Which of the following is a performance measures of the balanced scorecard: a.internal Business perspective b.all of the answers are correct c.financial Perspective d.customer perspectivearrow_forwarda. In which section of the statement of cash flows will this information appear? b. What value will apear? , why? . please make sure the answer is correct 100%arrow_forward1. _______________ is the process of determining the future value (FV) of a cash flow or a series of cash flows, while _________________ is the process of finding the present value (PV) of a future cash flow or series of cash flows. A. Calculating, accounting. B. Discounting, compounding. C. Compounding, forwarding. D. Compounding, discounting.arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
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