27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Determining selected amounts for cash flows from operating activities—direct method

Selected data taken from the accounting records of Ginis Inc. for the current year ended December 31 are as follows:



December 31


January 1

Accrued expenses payable (operating expenses) $ 12,650 $ 14,030
Accounts payable (merchandise creditors) 96,140 105,800
Inventories 178,020 193,430

During the current year, the cost of merchandise sold was $1,031,550 and the operating expenses other than depreciation were $179,400. The direct method is used for presenting the cash flows from operating activities on the statement of cash flows.

Determine the amount reported on the statement of cash flows for (a) cash payments for merchandise and (b) cash payments for operating expenses.

To determine

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.

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

To Determine: The amount of cash paid for merchandise.


Cash payments for purchase represents the total amount of cash paid for the purchase as well as to the accounts payable.

Therefore, the amount of cash paid for merchandise is $1,025,800.

Working notes:

Calculate increase or decrease in merchandise inventories:

Increase or decrease inmerchandise inventories}=(Beginning balance - Ending balance)=($193,430$178,020)=


To determine
The amount of cash paid for operating expenses.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Describe what happens when receivables are factored.

Cornerstones of Financial Accounting

Describe the three general categories of franchising arrangements.

Foundations of Business (MindTap Course List)

Identify the five major steps in the accounting cycle.

Intermediate Accounting: Reporting And Analysis

Define the term marketing


Why is EBIT generally considered independent of financial leverage? Why might EBIT actually be affected by fina...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)