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classes of cash receipts and cash payments:
1. Cash collections from customers
2. Interest and dividends received (alternatively, IAS 7 permits interest received and dividends received to be classified as investing cash flows rather than as
operating cash flows because they are returns on investments)
3. Cash paid toward operating expenses including salaries to employees, and so on
4. Payments to suppliers
5. Interest paid (alternatively, IAS 7 permits interest paid to be classified as a financing cash flow, because this is the cost of obtaining financing)
6. Income taxes paid
Example
Facts
Statement of Cash Flows—Direct Method (Operating Activities Section)
Cash flows from operating activities:
Cash collections from customers $900,000
Cash dividends received 100,000
Cash paid to employees (300,000)
Cash paid to suppliers (200,000)
Cash paid for other operating expenses (150,000)
Income taxes paid (100,000)
Interest paid (150,000)
Net cash flows from operating activities $100,000
CASE STUDY 3
XYZ Inc. is preparing its statement of cash flows under the direct method and has provided this information:
Required
Net credit sales $5,000,000
Accounts receivable, end of the year 1,500,000
Accounts receivable, beginning of the year 2,500,000
Purchases (on account) 4,000,000
Trade payable, end of the year 1,900,000
Trade payable, beginning of the year 2,000,000
Operating expenses 3,000,000
Accrued expenses, beginning of the year 500,000
Accrued expenses, end of the year 400,000
Depreciation on property, plant, and equipment 600,000
For the purposes of the statement of cash flows under the direct method, you are required to compute the cash collections from customers, payments to
suppliers, and cash paid for operating expenses.
Solution