22.5: Preparing a Statement of Cash flows using the Direct method Flashcards
What is Step 1 in preparing a statement of cash flows using the direct method?
Step 1 is to determine the change in cash by calculating the difference between the beginning and ending cash balances.
What is Step 2 in preparing a statement of cash flows using the direct method?
Step 2 involves recording information from the income statement into the operating activities section.
This requires adjusting the income statement figures to reflect cash-based transactions.
What are the key cash flow adjustments in the direct method for Tax Consultants Inc.?
For Tax Consultants Inc., the adjustments included:
Cash received from customers: $125,000 (adjusted for an increase in accounts receivable),
Cash paid to suppliers: $85,000 (adjusted for accounts payable),
Income taxes paid: $6,000.
What is Step 3 in preparing a statement of cash flows using the direct method?
Step 3 is to analyze the changes in each statement of financial position account to identify all cash flows associated with changes in the account balances.
How do changes in accounts receivable and accounts payable affect cash flow from operating activities?
An increase in accounts receivable results in a reduction of cash received from customers.
An increase in accounts payable leads to a reduction in cash payments to suppliers.
What are the primary cash flows from financing activities for Tax Consultants Inc. in 2023?
Proceeds from the issue of common shares: $60,000,
Payment of dividends: $14,000.
What are the final subtotals for the statement of cash flows for Tax Consultants Inc. (2023)?
Cash flows from operating activities: $3,000,
Cash flows from financing activities: $46,000,
Increase in cash: $49,000.