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THE OPERATING CASH FLOW SECTION OF THE CFS UNDER THE DIRECT METHOD
WOULD SHOW EACH MAJOR CLASS OF GROSS CASH RECEIPTS AND GROSS
CASH PAYMENTS.
INDIRECT APPROACH
THE OPERATING CASH FLOW SECTION OF THE CFS UNDER THE INDIRECT
METHOD WILL RECONCILE THE NET INCOME/LOSS OF THE COMPANY WITH THE
TOTAL CASH FLOWS GENERATED/USED IN OPERATING ACTIVITIES BY
ADJUSTING THE NET INCOME/LOSS FOR EFFECTS OF NON-CASH
TRANSACTIONS
C. SAMPLE OF THE INDIRECT METHOD
• THE COMPANY PRESENTED THE FOLLOWING IN ORDER TO AID THE ACCOUNTANT IN PREPARING THE CFS:
• A. NET INCOME: P200,000
• B. DEPRECIATION EXPENSE : P 25,000
• C. GAIN ON SALE OF PROPERTY AND EQUIPMENT: P100,000
• D. DECREASE IN TRADE AND OTHER RECEIVABLES: P 70,000
• E. PURCHASE OF PROPERTY AND EQUIPMENT: P200,000
• F. PAYMENT OF LOAN FROM BANK: P150,000
• COMPUTE FOR THE CASH GENERATED/USED IN FINANCING ACTIVITIES.
QUIZ 1
1. IDENTIFY WHICH OF THE FOLLOWING TRANSACTIONS FALL UNDER OPERATING, INVESTING AND FINANCING ACTIVITIES:
A. CASH RECEIVED FROM CUSTOMERS
B. CASH PAID TO SUPPLIERS
C. CASH PAID TO EMPLOYEES
D. CASH PAID TO PURCHASE EQUIPMENT (COMPANY DOES NOT SELL EQUIPMENT)
E. CASH RECEIVED FROM SALE OF FURNITURE (COMPANY’S MAIN LINE OF BUSINESS IS NOT RELATED TO FURNITURE)
F. DEPRECIATION EXPENSE
G. SALE OF GOODS ON CREDIT
H. PURCHASE OF GOODS ON CREDIT
I. CASH RECEIVED FROM GETTING A LOAN FROM A BANK
J. CASH PAID TO OWNERS
QUIZ 2
JUANA’S SARI-SARI STORE HAD THE FOLLOWING TRANSACTIONS DURING THE YEAR:
A. PURCHASE OF GOODS. PAID CASH. 100,000
B. SALE OF GOODS. RECEIVED CASH. 150,000
C. PAID UTILITIES 30,000
D. PAID RENT 10,000
E. SOLD EQUIPMENT FOR CASH 100,000
F. OWNER WITHDRAWS INVESTMENT 10,000
COMPUTE FOR THE NET CASH FLOW GENERATED BY/USED IN OPERATING ACTIVITIES
QUIZ 3
JUANA’S SARI-SARI STORE HAD THE FOLLOWING TRANSACTIONS DURING THE YEAR:
A. PURCHASE OF GOODS. PAID CASH. 100,000
B. SALE OF GOODS. RECEIVED CASH. 150,000
C. PAID UTILITIES 30,000
D. PAID RENT 10,000
E. SOLD EQUIPMENT FOR CASH 100,000
F. OWNER WITHDRAWS INVESTMENT 10,000
USING THE GIVEN ABOVE, PREPARE A CASH FLOW STATEMENT.