ADM 1340 Lecture Notes - Lecture 20: Cash Flow Statement, Cash Flow, Current Liability

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Cash flow statement: direct method, indirect method need: Cash provided [used] by operating activities 10 * investing activities -5 financing activities 3 net change in cash 8. Its an abstract accounting number, it isn"t cash. Indirect: net profit, add back depreciation add back loss on disposal subtract gain. If there"s an increase in a current liability it"s a + If there"s a decrease in current liability its . Firms what positive figure from cash flow activities in order to invest into new assets. Cash is the last item in the full income statement, if there"s cash at the top do not deal with it when doing the operating section. 2011 accounts receivable (opening balance) sales total o! Cash receipts from customers (subtract total from account receivable) Cost of goods sold = opening inventory purchases + closing inventory. If interest payable is cr then interest expense would be dr.

Related Questions

Highlight your answers.

1. The indirect method is used to develop Which section of the cash flow statement?

2. How is "depreciation expense" treated in developing cash flow statement using the indirect method?

a. Add to net income in calculating cash flow from operating activities

b. Subtracted from net income in calculating cash flow from operating activities

c. It is part of investing activities as it is related to PPE

d. It is not considered as it is not a cash activity

3. How is "increase in inventory" treated in developing cash flow statement using the indirect method?

a. Add to net income in calculating cash flow from operating activities

b. Subtracted from net income in calculating cash flow from operating activities

c. It depends

d. It is part of investing activities

4. How is "loss in selling machinery" treated in developing cash flow statement using the indirect method?

a. Add to net income in calculating cash flow from operating activities

b. Subtracted from net income in calculating cash flow from operating activities

c. It is part of investing activities as it is related to PPE

d. we need to know the selling price of the machinery to decide.

5. How is "decrease in investment" treated in developing cash flow statement using the indirect method?

a. Add to net income in calculating cash flow from operating activities

b. Subtracted from net income in calculating cash flow from operating activities

c. It is part of investing activities

d. It depends on whether it's long-term or short-term investment.

Kennedy, Inc. reported the following data:

Net income $127,659
Depreciation expense 16,038
Loss on disposal of equipment 11,080
Gain on sale of building 18,917
Increase in accounts receivable 7,995
Decrease in accounts payable 3,476
Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method. Use the minus sign to indicate cash outflows, a decrease in cash, cash payments, or any negative adjustments.

Kennedy, Inc.
Statement of Cash Flow

Cash flows from operating activities:
Net income
$
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense

Loss on disposal of equipment

Gain on sale of building

Changes in current operating assets and liabilities:
Increase in accounts receivable

Decrease in accounts payable

Net cash flow from operating activities

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1. List the three sections of the Statement of Cash Flows and briefly explain what activities are included in each section.

2. What can creditors, investors, and other users learn from the analysis of the cash flow statements?

3. Explain why depreciation expense, depletion expense, and amortization expense are added to net income in the operating activities section of the statement of cash flows when using the indirect method.

4. Leather Shop earned net income of $57,000 after deducting depreciation of $5,000 and all other expenses, Current assets decreased by $4,000, and current liabilities increased by $8,000. How much was Leather Shop's cash provided by operating activities (indirect method)?

5. How does the direct method differ from the indirect method?

ADM 1340 Lecture Notes - Lecture 20: Cash Flow Statement, Cash Flow, Current Liability

ADM 1340 Full Course Notes

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