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Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.
Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.
A cash flow statement includes the following three components.
Cash flows from operating activities: Cash flows from operating activity represent the net cash flows from the general operation of the business by comparing the cash receipt and cash payments.
The below table shows the way of calculation of cash flows from operating activities:
Cash flows from operating activities (Indirect method) |
Add: Decrease in current assets |
Increase in current liability |
|
Loss on sale of plant assets |
Deduct: Increase in current assets |
Decrease in current liabilities |
Gain on sale of plant assets |
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: The statement of cash flows under indirect method.
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Chapter 14 Solutions
Horngren's Financial & Managerial Accounting, Student Value Edition (5th Edition)
- Use a spreadsheet and the following financial information from Mineola Companys financial statements to build a template that automatically calculates the net operating cash flow. It should be suitable for use in preparing the operating section of the statement of cash flows (indirect method) for the year 2018.arrow_forwardUse the following excerpts from Mountain Companys financial information to prepare a statement of cash flows (indirect method) for the year 2018.arrow_forwardUse the following excerpts from Unigen Companys financial information to prepare the operating section of the statement of cash flows (indirect method) for the year 2018.arrow_forward
- Use the following excerpts from Yardley Companys financial information to prepare a statement of cash flows (indirect method) for the year 2018.arrow_forwardUse the following excerpts from Swansea Companys financial information to prepare the operating section of the statement of cash flows (direct method) for the year 2018.arrow_forwardUse the following information from Coconut Companys financial statements to prepare the operating activities section of the statement of cash flows (indirect method) for the year 2018.arrow_forward
- Preparing a Statement of Cash Flows Volusia Company reported the following comparative balance sheets for 2019: Required: Prepare a statement of cash flows for Volusia using the indirect method to compute net cash flow from operating activities.arrow_forwardPreparing Net Cash Flows from Operating Activities-Direct Method Refer to the information for Granville Manufacturing Company. Required: Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.arrow_forwardUse the following information from Hamlin Companys financial statements to determine operating net cash flows (indirect method).arrow_forward
- Use the following information from Kentucky Companys financial statements to determine operating net cash flows (indirect method).arrow_forwardUse the following information from Birch Companys balance sheets to determine net cash flows from operating activities (indirect method), assuming net income for 2018 of $122,000.arrow_forwardUse the following information from Jumper Companys financial statements to determine operating net cash flows (indirect method).arrow_forward
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