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Required
Interest payable, end of the year 50,000
Income taxes paid 100,000
Accounts receivable, beginning of the year 500,000
Accounts receivable, end of the year 850,000
Inventory, beginning of the year 500,000
Inventory, end of the year 400,000
Accounts payable, beginning of the year 200,000
Accounts payable, end of the year 500,000
Please prepare the operating activities section of the statement of cash flows using the indirect method.
Solution
Statement of Cash Flows—Indirect Method (Operating Activities Section)
Cash flows from operating activities:
Net income before income taxes $400,000
Adjustments for:
Depreciation on property, plant, and equipment 200,000
Loss on sale of building 100,000
Interest expense 150,000
850,000
Increase in accounts receivable (350,000)
Decrease in inventories 100,000
Increase in accounts payable 300,000
Cash generated from operations 900,000
Interest paid (200,000)
Income taxes paid (100,000)
Net cash flows from operating activities $600,000
REPORTING CASH FLOWS ON A GROSS BASIS VERSUS A NET BASIS
Financial Institutions
IAS 7 permits financial institutions to report cash flows arising from certain activities on a net basis. These activities, and the related conditions under which net
reporting would be acceptable, are set out below:
1. Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customers rather than those of the bank; for example, the
acceptance and repayment of demand deposits
2. Cash flows relating to deposits with fixed maturity dates