Prepare the operating activities section of Incorporation C’s statement of
Explanation of Solution
Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is 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.
Direct method: Under direct method, cash receipts from customers (
Operating activities: Operating activities include cash inflows and outflows from business operations.
Prepare the operating activities section of Incorporation C’s statement of cash flows using direct method:
C Incorporation | ||
Statement of Cash Flows- Direct Method (Partial) | ||
For the year ended December 31, 2019 | ||
Details | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Cash receipt from customer (1) | 498,000 | |
Less: Cash payments: | ||
Payment for inventory (2) | 310,000 | |
Payment for other expenses (3) | 86,300 | |
Payment for taxes(4) | 18,500 | 414,800 |
Net cash provided by operating activities | 83,200 |
Table (1)
Working notes:
Calculate the amount of change in accounts receivable:
Calculate the amount of cash received from sales to customers for year 2019:
Calculate the cash paid for acquiring inventory during 2019.
Hence, the cash paid for acquiring inventory during the year by Incorporation C is $310,000.
Note: Refer Table (2) for changes in inventory and accounts payable.
Calculate the changes in accounts payable and inventory.
Changes in accounts payable and inventory | |||
Particulars | Amount | ||
Current year (December 31, 2019) (1) |
Previous year (December 31, 2018) (2) |
Increase/(Decrease) | |
Inventory | $85,800 | $95,800 | ($10,000) |
Accounts payable | $15,000 | $21,000 | ($6,000) |
Table (2)
…… (2)
Determine the cash paid for other expenses during 2019.
Hence, the cash paid for other expenses during the year by Incorporation C is $86,300.
Note: Refer Table (3) for changes in wages payable and prepaid expense.
Working Note:
Determine the changes in accounts payable and inventory.
Schedule in the changes of assets and liabilities | |||
Particulars | Amount ($) | ||
Current year (December 31, 2019) (1) |
Previous year (December 31, 2018) (2) |
Increase/ (Decrease) | |
Wages payable | $9,000 | $5,000 | $4,000 |
Prepaid expense | $5,400 | $4,200 | $1,200 |
Table (3)
…… (3)
Calculate the amount of cash paid for income taxes:
Calculate the amount of change in income taxes:
Calculate the amount of cash paid for income taxes.
Hence, the cash provided or used from operating activities using direct method is $83,200.
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Chapter 16 Solutions
Principles of Financial Accounting.
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