Concept Introduction:
Cash flow statement:
Cash flow statement is one of the financial statements which shows the cash flows of the company during a given period of time.
When cash receipts and cash payments are used for calculating cash flow from operating activities, this method is termed as direct method.
To prepare:
Cash flow statement using direct method
Answer to Problem 3GLP
Solution:
The cash flow from statement using direct method −
Golden Corp. | ||
Statement of cash flows | ||
FOR THE year ended December 31, 2015 | ||
| | |
Particulars | Amount ($) | Amount ($) |
Cash flows from operating activities | | |
Receipts: | ||
Cash receipts from customers | 1,780,000 | |
Payments: | ||
Cash paid for merchandise | 1,145,000 | |
Cash paid for other expenses | 494,000 | |
Cash paid for income taxes | 19,000 | |
Total cash payments | (1,658,000) | |
Net cash provided by operating activities | 122,000 | |
| | |
Cash flows from investing activities | | |
Cash paid for equipment purchase | (36,000) | |
Net cash used in investing activities | (36,000) | |
| | |
Cash flows from financing activities | | |
Cash received from issuing stock | 60,000 | |
Cash paid for dividends | (89,000) | |
Net cash used in financing activities | (29,000) | |
| | |
Net increase in cash | 57,000 | |
Beginning cash balance | | 107,000 |
Ending cash balance | 164,000 |
Explanation of Solution
- Cash flow from operating activities- First, the receipts are calculated.
Cash receipts from customers
- Sales for the year = $ 1,792,000
Accounts receivables for 2014 = $ 71,000- Accounts receivables for 2015 = $ 83,000
Next, cash payments for the year will be calculated.
There are three cash payments during the year related to operating activities-
- Cash paid for merchandise
- Cash paid for other expenses
- Cash paid for income taxes These payments will be calculated as under-
Cash paid for merchandise
Given,
- Cost of goods sold = $1,086,000
- Accounts payables for 2014 = $71,000
- Accounts payables for 2015 = $87,000
- Inventory for 2014 = $526,000
- Inventory for 2015 = $601,000
- Cash paid for other expenses
- Other expenses = $494,000
- Cash paid for income taxes
- Income tax = $22,000
- Income taxes payable for 2014= $25,000
- Income taxes payable for 2015=$28,000
Now, the total cash payments will be calculated as under −
Now, cash flow from operating activities will be calculated as −
The cash flow from operating activities = $122,000.
- Cash paid for equipment purchase = $36,000 The cash used in investing activities = ($36,000).<
Given,
- Cash paid for dividends= $89,000
Now, cash flow from financing activities will be calculated as −
The cash used in financing activities = ($29,000).
Now, we need to calculate net increase/ (decrease in cash)-
Last step is to calculate Ending cash balance-
Given,
- Cash balance for 2014=$107,000
Thus, cash flow statement using direct method has been prepared.
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