CH 22 direct method format Flashcards
What is the formula to calculate cash received from customers?
Revenue (Sales)
– Increase in Accounts Receivable
+ Decrease in Accounts Receivable
= Cash received from customers
If accounts receivable increases during the year, how does this affect cash from customers?
Cash received is lower, so subtract the increase.
If accounts receivable decreases, what adjustment is made?
Add the decrease to calculate cash received.
What is the general formula for calculating cash paid to suppliers?
Cost of Goods Sold (COGS)
+ Increase in Inventory
– Decrease in Inventory
– Increase in Accounts Payable
+ Decrease in Accounts Payable
= Cash paid to suppliers
Why is inventory included in the calculation of cash paid to suppliers?
Because inventory changes indicate purchases not yet included in COGS.
Why is accounts payable subtracted in this calculation?
An increase in accounts payable means some purchases weren’t paid in cash yet.
How is cash paid to employees typically calculated?
Salaries and Wages Expense
– Increase in Salaries Payable
+ Decrease in Salaries Payable
= Cash paid to employees
If salaries payable increases, what does that mean?
Some salaries were unpaid at year-end, so actual cash paid is less.
What’s the general formula for cash paid for operating expenses (excluding salaries)?
Operating Expenses (excluding depreciation)
–/+ Change in Related Accrued Liabilities or Prepaid Expenses
= Cash Paid
Why is depreciation not included in cash paid for expenses?
A: It is a non-cash expense and does not affect cash flow.
How is cash paid for interest calculated under the direct method?
Interest Expense
– Increase in Interest Payable
+ Decrease in Interest Payable
= Cash Paid for Interest
Under IFRS, where can interest paid be classified?
Operating or Financing – must be consistently applied and disclosed.
What is the formula for cash paid for income taxes?
Income Tax Expense
– Increase in Income Taxes Payable
+ Decrease in Income Taxes Payable
= Cash Paid for Taxes
Why is income taxes payable important in this calculation?
It reflects taxes accrued but not yet paid, affecting the cash outflow.
What is the full format of the operating section in a direct method SCF?
Cash received from customers
Cash paid to suppliers
Cash paid to employees
Cash paid for operating expenses
Cash paid for interest
Cash paid for income taxes
= Net Cash Provided by Operating Activities
What types of assets are typically classified as FV-NI?
Equity investments that are not held for significant influence or control.
How are FV-NI investments reported on the financial statements?
At fair value on the balance sheet, with gains/losses in net income.
