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Chapter 14: 15SE (page 732)

Using a spreadsheet to complete the statement of cash flows鈥� indirect method

Companies can use a spreadsheet to complete the statement of cash flows. Each item that follows is recorded in the transaction analysis columns of the spreadsheet.

  1. Net income
  2. Increases in current assets (other than Cash)
  3. Decreases in current liabilities
  4. Cash payment for acquisition of plant assets
  5. Cash receipt from issuance of common stock
  6. Depreciation expense

Identify each as being recorded by a Debit or Credit in the statement of cash flows section of the spreadsheet

Short Answer

Expert verified
  1. Debit
  2. Credit
  3. Credit
  4. Credit
  5. Debit
  6. Debit

Step by step solution

01

Statement of cash flow using indirect method and spreadsheet

Organizations can use a spreadsheet to prepare cash flow statements using the indirect method. In the spreadsheet first balance sheet is prepared followed by the cash flow statement.

02

Identification of transaction as debit or credit

Particulars

Debit or Credit

Net Income

Debit

Increase in current assets (other than cash)

Credit

Decreases in current liabilities

Credit

Cash payment for acquisition of plant assets

Credit

Cash receipt from issuance of common stock

Debit

Depreciation Expense

Debit

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Most popular questions from this chapter

Boundary Rare Coins (BRC) was formed on January 1, 2018. Additional data for the year follow:

  1. On January 1, 2018, BRC issued no-par common stock for \(475,000.
  2. Early in January, BRC made the following cash payments:For store fixtures, \)53,000;For merchandise inventory, \(260,000;For rent expense on the store building, \)13,000
  3. Later in the year, BRC purchased merchandise inventory on account for \(240,000. Before year-end, BRC paid \)160,000 of these accounts payable.
  4. During 2018, BRC sold 2,200 units of merchandise inventory for \(450 each. Before year-end, the company collected 85% of this amount. Cost of goods sold for the year was \)330,000, and ending merchandise inventory totaled \(170,000.
  5. The store employs three people. The combined annual payroll is \)80,000, of which BRC still owes \(4,000 at year-end.
  6. At the end of the year, BRC paid income tax of \)24,000. There are no income taxes payable.
  7. Late in 2018, BRC paid cash dividends of $40,000.
  8. For store fixtures, BRC uses the straight-line depreciation method, over five years, with zero residual value.

Requirements

  1. Prepare BRC鈥檚 income statement for the year ended December 31, 2018. Use the single-step format, with all revenues listed together and all expenses listed together.
  2. Prepare BRC鈥檚 balance sheet at December 31, 2018.
  3. Prepare BRC鈥檚 statement of cash flows for the year ended December 31, 2018. Format cash flows from operating activities by the direct method.

Preparing operating activities using the direct method Amy鈥檚 Learning Center has assembled the following data for the year ended June 30, 2018:

Payments to suppliers $ 115,000

Cash payment for purchase of equipment 39,000

Payments to employees 66,000

Payment of notes payable 34,000

Payment of dividends 7,500

Cash receipt from issuance of stock 22,000

Collections from customers 188,000

Cash receipt from sale of land 58,000

Cash balance, June 30, 2017 41,000 Prepare the operating activities section of the business鈥檚 statement of cash flows for the year ended June 30, 2018, using the direct method.

Question: Classifying items on the statement of cash flows Cash flow items

must be categorized into one of four categories. Identify each item as operating (O), investing (I), financing (F), or non-cash (N).

a. Cash purchase of merchandise inventory

b. Cash payment of dividends

c. Cash receipt from the collection of long-term notes receivable

d. Cash payment for income taxes

e. Purchase of equipment in exchange for notes payable

f. Cash receipt from the sale of land

g. Cash received from borrowing money

h. Cash receipt for interest income

i. Cash receipt from the issuance of common stock

j. Cash payment of salaries

Question: Describe the five steps used to prepare the statement of cash flows by the indirect method.

Question: How does the direct method differ from the indirect method when preparing the operating activities section of the statement of cash flows?
See all solutions

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