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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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(Appendix 21.1) Define the direct method of reporting the cash flows from operating activities of a company.

To determine

Explain recording of cash flow from operating activities in the cash flow statement under direct method.

Explanation

Statement of cash flows: Cash flow statement reports all the cash transactions which are responsible for inflow and outflow of cash. The results of these transactions are reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Operating activities: Operating activities include cash inflows and outflows from business operations. Sale of goods and services to customers, collection of accounts receivable, collection of interest on loans are examples of operating activities.

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...

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