Queens College

Training, Teaching and Learning Materials

ACCOUNTS AND BUDGET SUPPORT LEVEL III

Unit of Competence
TTLM
Balance Cash Holdings
Module Title Balance Cash Holdings
LG Code: EIS ACB3 10 0812
TTLM Code: EIS ACB3M 10 0812

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TTLM Development Manual Date: October 12,2019
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INTRODUCTION

Welcome to the module “Balance Cash Holdings”. This learner’s guide was prepared
to help you achieve the required competence in “Accounts and Budget Support Level III”.
This will be the source of information for you to acquire knowledge attitude and skills in this
particular occupation with minimum supervision or help from your trainer.

Summary of Learning Outcomes

After completing this learning guide, you should be able to:

Lo1:- Maintain accurate cash floats
Lo2:- Remove receipts from terminal
Lo3:- Reconcile takings

How to Use this TTLM

o Read through the Learning Guide carefully. It is divided into sections that cover
all the knowledge, skills and attitude that you need.
o Read Information Sheets and complete the Self-Check at the end of each section
to check your progress
o Read and make sure to Practice the activities in the Operation Sheets. Ask your
trainer to show you the correct way to do things or talk to more experienced
person for guidance.
o When you are ready, ask your trainer for institutional assessment and provide you
with feedback from your performance.

Lo1:- Maintain accurate cash floats

Information Sheet: 1Explain the Reporting of Cash

 Cash is recorded in both the balance sheet and the statement of cash flows. The balance
sheet shows the amount of cash available at a given point in time. The statement of cash
flows shows the sources and uses of cash during a period of time.

 Cash on hand, cash in banks, and petty cash are often combined and reported simply as cash.

 Cash is the most liquid asset and listed first in the current assets section of the balance sheet.

 Many companies use the designation “Cash and cash equivalents” in reporting cash. Cash
equivalents are short-term, highly liquid investments that are both:

(1) Readily convertible to known amounts of cash, and

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TTLM Development Manual Date: October 12,2019
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(2) So near their maturity that their market value is relatively insensitive to changes in
interest rates.

 A negative balance in the cash account should be rare. It should be reported among current
liabilities.

 A company may have cash that is not available for general use but rather is restricted for a
special purpose. Cash restricted in use should be reported separately on the balance sheet as
restricted cash. If the restricted cash is expected to be used within the next year, the amount
should be reported as a current asset. When this is not the case the restricted funds should be
reported as a noncurrent asset.

Discuss the Basic Principles of Cash Management

Many companies struggle, not because they fail to generate sales, but because they cannot
manage their cash. Managing the often-precarious balance created by the ebb and flow of cash
during the operating cycle is one of a company’s greatest challenges.

 Management of cash is the responsibility of the company treasurer.

 A company can improve its chances of having adequate cash by following five basic
principles of cash management

1. Increase the speed of collection on receivables

 The more quickly customers pay the more quickly a company can use those funds.
 Any attempt to force customers to pay earlier must be carefully weighted against the
possibility of angering or alienating customers.
 One common way to encourage customers to pay more quickly is to offer cash discounts
for early payment.

2. Keep inventory levels low

 Maintaining large inventories ties up large amounts of cash, as well as warehouse space.
 Increasingly, firms are using techniques to reduce the inventory on hand, thus conserving
their cash.

3. Delay payment of liabilities

 A company should use the full payment period, but not “stretch” payment past the point
that could damage its credit rating.

4. Plan the timing of major expenditures

 In order to increase the likelihood of obtaining outside financing, a company should
carefully consider the timing of major expenditures in light of its operating cycle. If at all
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TTLM Development Manual Date: October 12,2019
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possible, the expenditure should be made when the company normally has excess cash—
usually during the off-season.

5. Invest idle cash

 Cash on hand earns nothing.
 An important part of the treasurer’s job is to ensure that any excess cash is invested, even
if it is only overnight.
 A liquid investment is one with a market in which someone is always willing to buy or
sell the investment.
 A risk-free investment means there is no concern that the party will default on its promise
to pay its principal and interest.

Identify the Primary Elements of a Cash Budget

Cash is vital and planning the company's cash needs is a key business activity. The cash
budget shows the anticipated cash flows, over a one- to two-year period. The cash budget
contains the following three sections:

1. Cash receipts section—includes expected receipts from the company's principal

source(s) of revenue, such as cash sales and collections from customers on credit sales.
This section also shows anticipated receipts of interest and dividends, and proceeds from
planned sales of investments, plant assets, and the company's capital stock.
2. Cash disbursements section—shows expected payments for direct materials, direct
labor, manufacturing overhead, and selling and administrative expenses. This section
also includes projected payments for income taxes, dividends, investments, and plant
assets.

3. Financingsection—shows expected borrowings and the repayment of the borrowed

funds and interest.

 Data in the cash budget must be prepared in sequence because the ending cash balance of one
period becomes the beginning cash balance for the next period.

 Data for preparing the cash budget are obtained from other budgets and from information
provided by management.
 A cash budget contributes to more effective cash management

OPERATION SHEET 1: Describe team role and scope

Purpose:
This learning outcome aims to provide trainees with the knowledge, skill and attitude teamwork.
Understanding the concept of teamwork helps to make easy the daily work activity.
Equipment, Tools and Materials:
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TTLM Development Manual Date: October 12,2019
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Training, Teaching and Learning Materials

 Computer
 Projector
 White board
 White board marker &Duster
 Lecture room
 Printer
Condition:

Students and trainer’s are legally required to lock the health and safety of trainer. This applies to
all organizations and including voluntary organizations.
 Students must provide safe working environment.
 Students must not put themselves or others at risk.

Procedure:
 Need to establish a team
 Identify the team objective
 Prepare effective common plan
 Apply practically

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TTLM Development Manual Date: October 12,2019
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Lo2:- Remove receipts from terminal

Information Sheet: 1 Cash Controls

 Just as cash is the beginning of a company’s operating cycle, it is usually the

starting point for a company’s system of internal control.
 Cash is the asset most susceptible to improper diversion and use.
 Because of the large volume of cash transactions, numerous errors may occur in
executing and recording cash transactions.
 To safeguard cash and ensure the accuracy of the accounting records for cash,
effective internal control over cash is imperative.
 Cash consists of coins, currency (paper money), checks, money orders, and
money on hand or on deposit in a bank or similar depository.

Cash Receipts Controls:

 Cash receipts result from cash sales; collections on account from customers; the
receipt of interest, rents, and dividends; investments by owners; bank loans; and
proceeds from the sale of noncurrent assets.

 The following internal control principles explained earlier apply to cash receipts
transactions as shown:
 Establishment of responsibility - Only designated personnel (cashiers)
are authorized to handle cash receipts.
 Segregation of duties - Different individuals receive cash, record cash
receipts, and hold the cash.
 Documentation procedures - Use remittance advice (mail receipts), cash
register tapes, and deposit slips.
 Physical controls - Store cash in safes and bank vaults; limit access to
storage areas; use cash registers.
 Independent internal verification - Supervisors count cash receipts
daily; treasurer compares total receipts to bank deposits daily.
 Human resource controls - Bond personnel who handle cash; require
vacations; deposit all cash in bank daily.
 In some instances, the amount deposited at the bank will not agree with the cash
recorded in the accounting records based on the cash register tape.
 When a difference occurs between the actual cash and the amount reported on the
cash register tape, the account, Cash Over and Short, is used.
 Assume for example that the cash register tape indicated sales of $6,956.20 but the
amount of cash was only $6,946.10. The cash shortfall of $10.10 would be recorded
as follows:

Cash 6,946.10
Cash Over and Short 10.10

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Sales Revenue 6,956.20

Explain the Applications of Internal Control to Cash Disbursements

Cash Disbursement Control

 Cash is disbursed to pay expenses and liabilities or to purchase assets.

 Internal control over cash disbursements is more effective when payments are made
by check, rather than by cash, except for incidental amounts that are paid out of petty
cash.

 Cash payments are generally made only after specific control procedures have
been followed.

 The paid check provides proof of payment.

 The principles of internal control apply to cash disbursements as follows:

 Establishment of responsibility - Only designated personnel (treasurer) are
authorized to sign checks.
 Segregation of duties - Different individuals approve and make payments; check
signers do not record disbursements.
 Documentation procedures - Use prenumbered checks and account for them in
sequence; each check must have approved invoice; stamp invoices “PAID”.
 Physical controls - Store blank checks in safes with limited access; print check
amounts by machine with indelible ink.
 Independent internal verification - Compare checks to invoices; reconcile bank
statement monthly.
 Human resource controls – Bond personnel who handle cash; require employees
to take vacations; conduct background checks.

 Voucher System Controls – A voucher system is a network of approvals by

authorized individuals, acting independently, to ensure that all disbursements by
check are proper
 A voucher system is effective because:
(a) it establishes responsibility for the authorization process; and
(b) it keeps track of the documents that back up each transaction.
 Petty Cash Fund – A cash fund used to pay relatively small amounts. Information
on the operation of a petty cash fund is provided in the appendix to this chapter.

Information Sheet Classification of Cash Flows

The statement of cash flows is grouped in to three main categories:
1) Operating activities,
2) Investing activities and

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3) Financing activities.

 Operating activities: - All cash flows other than those associated with investing and
financing activities are classified as operating activities. Cash flows from operating
activities include:
Cash Receipts Cash Payments
-Collections form customers -Payments to supplies of
for sales of goods and services merchandise and services,
-Interest and dividends received including payments to employees
-Other receipts form operations, -Payment of interest
as, for example, proceeds from -Payments of income taxies
settlement of litigation -Other expenditures relating to
operations, as, for example,
payments in settlement of
litigation
Note that receipts and payments of interest are classified as operating activities, not as
investing or financing activities.

 Investing Activities: cash flows relating to investing activities include:

Cash receipts
-Cash proceeds from selling
investments or plant assets
-Cash proceeds from collection
principal amounts on loans

Cash payments
-Payments to acquire investments or
plant assets.
-Amounts advanced to borrowers.

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 Financing Activities: cash flows classified as financial activities include the following:

Cash Receipts Cash payments

-Proceeds from both short-term -Repayments of amounts borrowed
and long-term borrowing. (Excluding interest payments)
-Cash received from owners (as, -Payments to owners, such as cash
for example, from issuing stock). dividends
Repayment of amounts borrowed refers to repayment of loans, not to payments made on
accounts payable or accrued liabilities. Payments of accounts payable and of accrued liabilities
are considered as “payments to suppliers of merchandise and services…” and are classified as
cash out flow from operating activities. Also, remember that all interest payments are classified
as operating activities.
Why Are Receipts and Payments of Interest “Operating Activities”?
One might argue that interest receipts result from investing activities and that interest payments
are related to financing activities. The FASB considered this point of view, but decided instead
to classify interest receipts and payments as operating activities. The FASB wanted net cash
flow from operating activities to reflect the cash effects of the revenue and expense transactions
entering in to the determination of net income. As interest revenue and interest expense enter
into the determination of net income, the FASB decided to classify the related cash flows as
operating activities. Payments of dividends, however, do not enter in to the determination of net
income. Therefore, dividend payments are viewed as financing activities.
Cash and “Cash Equivalents”
Forpurposes of preparing a statement of cash flows, the FASB has defined “cash” as including
both cash and cash equivalents. “Cash equivalents” are short-term highly liquid investments,
such as money market funds, commercial paper, and Treasury bills. Money is considered “cash”
regardless of whether it is held in currency, in a bank account, or in the form of cash equivalents.
However, any interest-received from owning cash equivalents is included in cash receipts from
operating activities.
Critical Importance of Cash Flow from Operating Activities
In the long run, a business must generate a positive net cash flow from its operating activities if
the business is to survive. A business with negative cash flows from operations will not be able
to raise cash from other sources indefinitely. In fact, the ability of a business to raise cash
through financing activities is highly dependent up on its ability to generate cash from its normal
business operations. Creditors and stockholders are reluctant to invest in a company that does
not generate enough cash from operating activities to assure prompt payment of maturing
liabilities, interest, and dividends.
Preparing a Statement of Cash Flows:
EXAMPLE:-Shown below are Alem Corporation’s income statements and the necessary
information about changes in balance sheet accounts during the year.
Alem Corporation
Income statement
For the year ended December 31, 2004

Revenue and gains:

Net sales-------------------------------------------------$900,000
Dividends revenue------------------------------------------3,000
Interest revenue----------------------------------------------6,000
Gain on sales of plant assets------------------------------31,000
Total revenue and gains------------------------------ $940,000
Costs, expenses, and losses
Cost of goods sold-----------------------------$500.000
Operating expenses (including
depreciation of $40,000) -------------------- 300,000
Interest expense------------------------------ 35,000
Income taxes expense ------------------------ 36,000
Loss on sales of marketable securities---- 4,000
Total costs, expenses, and losses ------------------------875,000
Net income---------------------------------------------------------- $65,000
Additional Information
AN ANALYSIS OF CHANGES IN THE BALANCE SHEET ACCOUNTS OF ALEM
CORPORATION PROVIDES THE FOLLOWING INFORMATION ABOUT THE
COMPANY’S ACTIVITIES IN THE CURRENT YEAR. TO ASSIST IN THE
PREPARATION OF A STATEMENT OF CASH FLOWS, THIS INFORMATION IS
CLASSIFIED IN TO THE CATEGORIES OF OPERATING ACTIVITIES, INVESTING
ACTIVITIES, AND FINANCING ACTIVITIES
Operating activities
1. Accounts receivable increased by $30,000 during the year.
2. Dividend revenue is recognized on the cash basis, but interest revenue is recognized on
the accrual basis. Accrued interest receivable decreased by $1,000 during the year.
3. Inventory increased by $10,000 and accounts payable increased by $15,000 during the
year.
4. During the year, short-term prepaid expenses increased by 3,000 and accrued expenses
payable (other than for interest or income taxes) decreased by $6,000. Depreciation for
the year amounted to $40,000.
5. The accrued liability for interest payable increased by $7000 during the year,
6. The accrued liability for income taxes payable decreased by $2,000 during the year.
Investing Activities
7. Analysis of the marketable securities account shows debit entries of $65,000, representing the
cost of securities purchased, and credit entries of $44,000 representing the of securities
sold.
8. Analysis of the Notes receivable account shows $17,000 in debit entries, representing cash
lent to borrowers by Alem Corporation during the year, and $12,000 in credit entries,
representing collections of notes receivable.
9. Alem Corporation purchased plant assets for a $ 200,000 during the year paying
$160,000 cash and issuing a long-term note payable for the $40,000 balance. In addition, the
company sold plant assets with a book value of $44,000.
Financing Activities
10. During the year, Alem Corporation borrowed $45,000 cash by issuing short-term notes
payable to banks. Also, the company repaid $55,000 in principal amounts due on these loans
and other notes payable.
11. The company issued bonds payable for $100,000 cash.
12. The company issued for cash 1,000 shares of $10 par value capital stock at a price of $50
per share.
13. Cash dividends declared and paid to stockholders amounted to $40,000 during the year.
Cash and cash equivalents
14. Cash and cash equivalents as shown in Alem corporation’s balance sheets, amounted to
$40,000 at the beginning of the year and $75,000 at year end a net increase of $35,000.

USING THIS INFORMATION, WE WILL NOW ILLUSTRATE THE STEPS IN

PREPARING ALEM CORPORATION’S STATEMENT OF CASH FLOWS AND ALSO
A SUPPORTING SCHEDULE DISCLOSING THE “NON CASH” INVESTING AND
FINANCING ACTIVITIES.
IN OUR DISCUSSION, WE WILL OFTEN REFER TO THESE ITEMS OF
“ADDITIONAL INFORMATION “BY CITING THE PARAGRAPH NUMBERS
SHOWED IN PARENTHESES.

The distinction between accrual-basis measurements and cash flows is of fundamental

importance in understanding financial statements and other accounting reports.

Cash Flows from Operating Activities

The net cash flow from operating activities is determined by combining certain cash inflows and
subtracting certain cash outflows. The inflows are cash received from customers, and interest
and dividends received; the outflows are cash paid to suppliers and employees, interest paid, and
income taxes paid.

In computing each of these cash flows, our starting point is an income statement amount, such as
net sales; the cost of goods sold, or interest expense. As you study each computation, be sure
that you understand why the income statement amount must be increased or decreased to
determine the related cash flow. You will find that an understanding of these computations will
do more than show you how to compute cash flows: it will also strengthen your understanding of
the income statement and the balance sheet.
Cash Received from Customers: To the extent that sales are made for cash, there is no
difference between the amount of cash received from customers and the amount recorded sales
revenue. Differences do arise, however, when sales are made on account. If accounts receivable
have increased during the year, credit sales have exceeded collections of accounts receivable.
Therefore, we must deduct the increase in accounts receivable over the year from net sales in
order to determine the amount of cash received. If accounts receivable have decreased over the
year, collections of these accounts must have exceeded credit sales. Therefore, we must add the
decrease in accounts receivable to net sales to determine the amount of cash received. The
relationship between cash received from customers and net sales is summarized below:

Cash received +decrease in accounts receivable

from customers = Net sales Or
–increase in accounts receivables

The increase or decrease in accounts receivable is determined simply by comparing the year-end
balance in the account to its balance at the beginning of the year. In our Alem Corporation
example, paragraph (1) of the Additional Information tells us that accounts receivable have
increased by $30,000 during the year. The income statement shows net sales for the year,
$900,000. Therefore, the amount of cash received from customers may be computed as follows:
Net sales (accrual basis) ----------------------------------$900,000
Less: increase in accounts receivable-------------------- 30,000
Cash received from customers----------------------------$870,000

Interest and Dividends received

Our next objective is to determine the amounts of cash received during the year as dividends and
interest. As explained in paragraph (2) of the additional information, dividend revenue is
recorded on the cash basis. Therefore, the $3,000 shown in the income statement also represents
the amount of cash received as dividends.
INTEREST REVENUE, ON THE OTHER HAND, IS RECOGNIZED ON THE
ACCRUAL BASIS. WE HAVE ALREADY SHOWN HOW TO CONVERT ONETYPE
OF REVENUE, NET SALES, FROM THE ACCRUAL BASIS TOTHE CASHBASIS. WE
MAY USE THE SAME APPROACH IN CONVERTING INTEREST REVENUE FROM
THE ACCRUAL BASIS TO THE CASH BASIS. OUR FORMULA FOR CONVERTING
NET SALES TO THE CASH BASIS MAY BE MODIFIED TO CONVERT INTEREST
REVENUE TO THE CASH BASIS AS FOLLOWS:
 Interest Interest +decrease in interest receivable
or
Received = revenue -increase in interest receivable

Theincome statement for Alem Corporation shows interest revenue of $6,000, and paragraph (2)
states that the amount of accrued interest receivable has decreased by $1,000 during the year.
Thus, the amount of cash received as interest may be computed as follows:
Interest revenue (accrual basis) ------------------------------$6,000
Add: Decrease in accrued interest receivable----------------1,000
Interest received (cash basis) ---------------------------------$7,000
The amounts of interest and dividends received in cash are combined for presentation in the
statement of cash flows:
Interest received (cash basis) ------------------------------$7,000
Dividends received (cash basis) ----------------------------3,000
Interest and dividends received---------------------------$10,000
Cash Payments for Merchandise and For Expenses
The next item in the statement of cash flows, “cash paid to suppliers and employees,” includes
all cash payments for purchases of merchandise and for operating expenses (all expenses other
than interest and income taxes). Payments of interest and income taxes are listed as a separate
item in the statement. The amounts of cash paid for purchases of merchandise and for operating
expenses are computed separately.
Cash Paid For Purchases of Merchandise:
The relation ship between cash payments for purchases of merchandise and the cost of goods
sold depends up on the changes during the period in inventory and in accounts payable to
suppliers of merchandise. This relationship may be stated as follows:

+ increase in + decrease in
Cash payments Cost of inventory and accounts payable
for purchases = goods sold Or Or
– decrease in – increase in
Inventory accounts payable
Using information from the Alem Corporation income statement and paragraph (3), the cash
payments for purchases may be computed as follows:
Cost of goods sold--------------------------------------------------$500,000
Add: Increase in inventory -----------------------------------------10,000
Net purchases (accrual basis) -------------------------------------$510,000
Less: Increase in accounts payable to suppliers -----------------15,000
Cash payments for purchases of merchandise-------------------$495,000

Let us review the logic behind this computation. If a company is increasing its inventory, it will
be buying more merchandise than it sells during the period; furthermore, if the company is
increasing its accounts payable to merchandise creditors, it is not paying cash for all of these
purchases.

Cash Payments for Expense: Expenses, as shown in the income statements, represent the cost
of goods and services used up during the period. However, the amounts shown as expenses may
differ significantly from the cash payments made during the period. Consider, for example,
depreciation expense. Recording depreciation expense requires no cash payment, but it does
increase total expenses measured on the accrual basis. Thus, in converting accrual-basis
expenses to the cash basis, we must deduct depreciation expense and any other “non cash”
expenses from our accrual-basis operating expenses. The other “non cash” expenses - expenses
not requiring cash outlays- include amortization of intangible assets and amortization of bond
discount.

A second area of difference arises from short-term timing differences between the recognition of
expenses and the actual cash payments. Expenses are recorded in accounting records when the
related goods or services are used. However, the cash payments for these expenses might occur
(1) in an earlier period, (2) in the same period, or (3) in a later period. Let us briefly consider
each case.

1. If payment is made in advance, the payment creates an asset, termed a prepaid

expense, or, in our formula, a “prepayment”. Thus, to the extent that prepaid
 expenses are increased over the year, cash payments exceed the amount recognized as
expense.
2. If payment is made in the same period, no problem arises because the cash payment is
equal to the amount of expense.
3. If payment is made in a later period, the payment reduces a liability for an accrued
expense payable. Thus, to the extent that accrued expenses payable are decreased
over the year, cash payments exceed the amount recognized as expense.

The relationships between cash payments and accrual-basis expenses are summarized below:
Cash payments -depreciation +increase in +decreases in
for expense = Expenses and other and related related
non –cash prepayments and accrued
expenses or liabilities
-decrease in or
related -increase
prepayments in related
accrued
liabilities

In a statement of cash flows, cash payments for interest and for income taxes are shown
separately from cash payments for operating expenses. Using data from Alem Corporation’s
income statement and from paragraph (4), we may compute the company’s cash payments for
operating expense as follows:

Operating expenses (including depreciation) -----------------$300,000

Less: Non-cash expenses (depreciation) ------------------------40,000
Subtotal--------------------------------------------------------------$260,000
Add: Increase in short-term prepayments-------------$3,000
Decrease in accrued liabilities----------------------6,000 9,000
Cash payments for operating expenses----------------------------$269,000

 Cash Paid to Suppliers And Employees: The caption to be used in our cash flow
statements, “cash paid to suppliers and employees,” includes both cash payments for
purchases and for operating expense. This cash out flow may now be computed as follows:
 Cash payments for purchases of merchandise-----------------$495,000
Cash payments for operating expenses---------------------------269,000
Cash payments to suppliers and employees--------------------$764,000

 Cash Payments for Interest and Taxes: Interest expense and income taxes expense may be
converted to cash payments with the same formula we used to convert operating expenses.
Alem Corporation’s income statements shows interest expense of $35,000, and paragraph (5)
states that the liability for interest payable increased by $7,000 during the year. The fact that
the liability for unpaid interest increased over the year means that not all of the interest
expense shown in the income statement was paid in cash. To determine the amount of
interest actually paid, we must subtract from total interest expense the portion that has been
financed through an increase in the liability for interest payable. This computation is shown
below:
Interest expense--------------------------------------------------$35000
Less: Increase in related accrued liability-----------------------7000
Interest Paid------------------------------------------------------$28000
Similar reasoning is used in determining the amount of income taxes paid by Alem Corporation
during the year. The accrual-based income taxes expense, reported in the income statement,
amounts to $36,000. However, paragraph (6) states that the company has reduced its liability for
income taxes payable by $2,000 over the year, Incurring income taxes expense increases the tax
liability; making cash payments to tax authorities reduces it. Thus, if the liability decreases over
the year, cash payments to tax authorities must have been greater than the income taxes
expense for the current year. The amount of the cash payments is determined as follows:
Income taxes expense----------------------------------------$36000
Add; Decrease in related accrued liability-------------------2000
Income taxes paid---------------------------------------------$38000

A quick Review: We have now shown the computation of each cash flow relating to Alem
Corporation’s operating activities. The operating activities section of the cash flow statement,
illustrating the information developed in the proceeding paragraphs.
Cash flows from operating activities:
Cash received from customers---------------------- $870,000
Interest and dividends received------------------------10,000
Cash provided by operating activities-------------------------------$880,000
Cash paid to suppliers and employees-----------------$(764000)
Interest paid----------------------------------------------- (28000)
Income taxes paid----------------------------------------- (38000)
Cash disturbed for operating activities----------------------- (830,000)
Net cash flow from operating activities-------------------------------$50,000

Differences between Net Income and Net Cash Flow from Operating Activities

Alem Corporation reported net income of $ 65,000, but net cash flow from operating activities is
only $50,000. What caused this $15,000 difference? The answer, in short, is many things. First,
depreciation expense reduces net income but does not affect net cash flow. Next, all the
adjustments that we made to net sales, cost of goods sold, and expenses represented short-term
timing differences between net income and the underlying net cash flow from operating
activities. Finally, non-operating gains and losses may cause substantial differences between
net income and net cash flow from operations.

Non-operating gains and losses may result from sales of plant assets, marketable securities, and
other investments; or from the retirement of long-term debt. These gains and losses affect the
cash flows relating to investing or financing activities, not the cash flows from operating
activities.

REPORTING OPERATING CASH FLOW: THE DIRECT AND INDIRECT

METHODS

In our illustration, we use the direct method of computing and reporting the net cash flow from
operating activities. The direct method shows the specific cash inflows and outflows
comprising the operating activities of the business. The FASB (Financial Accounting Standard
Board) has expressed its preference for the direct method, but it also allows companies to use an
alternative, called the indirect method.

Computation of net cash flow from operating activities by the indirect method looks quite
different from the direct method computation. However, both methods result in the same net
cash flow from operating activities. Under the indirect method, the computation begins with
accrual based net income (as shown in the income statement), and their shows the various
adjustments necessary to reconcile net income with net cash flow from operating activities. The
general format of this computation is summarized below:
Net Income
Add: Expenses that do not require cash outlays in the period (such as depreciation
expense)
Operating cash inflows not recorded as revenue in the period.
“Non-operating” losses deducted in the determination of net income.
Less: Revenue that does not result in cash inflows in the period.
Operating cash outflows not recorded as expense in the period
”Non operating” gains included in the determination of net income
Net cash flow from operating activities

The above summary describes the differences between net-income and net cash flow from
operating activities in broad, general terms. In actual statements of cash flows, a dozen or more
specific items may appear in this reconciliation.

In this duty, we emphasize the direct method, as we consider it to be the more informative
approach and it is the method recommended by the FASB.
Cash Flows from Investing Activities
Paragraphs (7) through (9) in the additional information for our Alem Corporation example
provide most of the information necessary to determine the cash flows from investing activities.
In the following discussion, we will illustrate the presentation of these cash flows and also
explain the sources of the information contained in the numbered paragraphs.
Much information about investing activities can be obtained simply by looking at the changes in
the related asset accounts during this year. Debit entries in these accounts represent purchases of
the assets, or cash outlays. Credit entries represent sales of the assets, or cash receipts. However,
credit entries in asset accounts represent only the cost (book value) of the assets sold. To
determine the cash proceeds from these sales transactions, we must adjust the amount of the
credit entries for any gains or losses recognized on the sales.

 Purchases and Sales of Securities: To illustrate, consider paragraph (7) which summarizes
the debit and credit entries to the Marketable securities account. As explained earlier in this
duty, the $65,000 in debit entries represents purchases of marketable securities. The $44,000
in credit entries represent the cost of marketable securities sold during the period. However,
the income statement shows that these securities were sold at a $4,000 loss. Thus, the cash
proceeds from these sales amounted to only $40,000 ($44,000 cost, minus $4,000 loss on
sale). In the statement of cash flows, these investing activities are summarized as follows:
Purchases of marketable securities-----------------------$(65,000)
Proceeds from sales of marketable securities-------------$40,000

Loans Made And Collected: Paragraph (8) provides all the information necessary to summarize
the cash flows from making and collecting loans:
Loans made to borrowers -----------------------------------$(17,000)
Collections on loans ------------------------------------------$12,000

This information comes directly from the notes receivable account. Debit entries in the account
represent new loans made during the year; credit entries indicate collections of the principal
amount on outstanding notes (loans). (Interest received is credited to the Interest Revenue
account and is included among the cash receipts from operating activities).

 Cash Paid to Acquire Plant Assets: Paragraph (9) states that Alem Corporation purchased
plant assets during the year for $200,000, paying $160,000 in cash and issuing a long-term
note payable for the $40,000 balance. Notice that only the $160,000 cash payment appears in
the statement of cash flows. However, one objective of this financial statement is to show all
 of the company’s is investing and financing activities during the year. Therefore, the non
cash aspects of these transactions are shown in a supplementary schedule, as follows:
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Purchases of plant assets -----------------------------------------$200,000
Less: portion financed through issuance of long-term debt--- 40,000
Cash paid to acquire plant assets--------------------------$160,000
This supplementary schedule accompanies the statement of cash flows.

 Proceeds from Sales of Plant Assets: Assume that an analysis of the plant asset accounts
shows net credit entries totaling $44,000 in the year. (“Net credit entries” means all credit
entries, net of related debits to accumulated depreciation when assets were sold). These “net
credit entries” represent the book value of plant assets sold during the year. However, the
income statement shows that these assets were sold at a gain of $31,000. Therefore, the cash
proceeds from sales of plant assets amounted to $75,000, as shown below:

Book value of plant assets sold------------------------------$44,000

Add; gain on sales of plant assets-----------------------------31.000
Proceeds from sales of plant assets ---------------------------$75,000
Cash Flows from Financing Activities
Cash flows from financing activities are determined by analyzing the debit and credit changes
recorded during the period in the related liability and stockholders equity accounts. In a sense,
cash flows from financing activates are more easily determined than those relating to investing
activities, because financing activities seldom involve gains or losses. Thus, the debit or credit
changes in the balance sheet accounts usually are equal to the amounts of the related cash flows.

CREDIT CHANGES IN SUCH ACCOUNTS AS NOTES PAYABLE AND THE

ACCOUNTS FOR LONG-TERM DEBT AND PAID-IN CAPITAL USUALLY
INDICATE CASH RECEIPTS, DEBIT CHANGES INDICATE CASH PAYMENTS.
 Short-Term Borrowing Transactions: To illustrate, consider paragraph (10), which
provides the information supporting the following cash flows:
 Proceeds from short-term borrowing ------------------------$45,000
Payments to settle short-term debts-------------------------$(55,000)

Is it possible to determine the proceeds of short-term borrowing transactions through out the year
with out carefully reviewing the cash receipts journals? The answer is yes-easily. The proceeds
from short-term borrowing are equal to the sum of the credit entries in the short-term notes
payable account. Payments to settle short-term debts are equal to the sum of the debit entries in
this account.

 Proceeds from Issuing Bonds Payable and Capital Stock

Paragraph (11) states that Alem Corporation received cash of $100,000 by issuing bonds
payable. This amount was determined by summing the credit entries in the Bonds payable
account. The Bonds payable account included no debit entries during the year, thus, no bonds
were retried.

Paragraphs (12) states that during the year Alem Corporation issued capital stock for $50,000.
The proceeds from issuing stock are equal to the sum of the credit entries made in the capital
stock and Additional Paid-in Capital accounts.

 Cash dividends paid to stockholders: Paragraph (13) states that Alem Company declared
and pay cash dividends of $40,000 during the year. In practice, most corporations pay cash
dividends in the same year in which these dividends are declared. In these situations, the cash
payments are equal to the related debit entries in the Retained Earning account.

If the balance sheet includes a liability for dividends payable, the amounts debited to retained
earnings represent dividends declared during the period, which may differ from the amount of
dividends paid. To determine cash dividends paid, we must adjust the amount of dividends
declared by adding any decrease (subtracting any increase) in the Dividends Payable account
over the period.
Relationship between the statement of cash flows and the Balance Sheet
The first asset appearing in the balance sheet is cash and cash equivalents. The statement of cash
flows explains in some detail the change in this asset from one balance sheet date to the next.
The last three lines in the cash flow statement illustrate this relationship, as shown in our Alem
Corporation example:

Net increase (decrease) in cash and cash equivalents-----------$35,000

Cash and cash equivalents, beginning of year---------------------40,000
Cash and cash equivalents, end of year----------------------------$75,000

ALEM CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2004
Cash flows from operating activities:
Cash received from customers-----------------------------------$870,000
Interest and dividends received----------------------------------- 10,000
Cash provided by operating activities---------------------------------$880,000
Cash paid to suppliers and employees-------------------------$(764,000)
Interest paid--------------------------------------------------------- (28,000)
Income taxes paid---------------------------------------------------(38,000)
Cash disbursed for operating activities---------------------------- (830,000)
Net cash flow from operating activities----------------------------------------------$50,000
Cash flows from investing activities:
Purchases of marketable securities------------------------------------$(65,000)
Proceeds from sales of marketable securities-----------------40,000
Loans made to borrowers--------------------------------------(17,000)
Collections on loans---------------------------------------------12,000
Purchases of plant assets------------------------------------- (160,000)
Proceeds from sales of plant assets----------------------------75,000
Net cash used by investing activities-------------------------------------------- (115,000)
Cash flows form financing activities:
 Proceed from short-term borrowing-------------------------$45,000
Payments to settle short-term debts------------------------ (55,000)
Proceeds from issuing bonds payable-----------------------100,000
Proceeds from issuing capital stock--------------------------50,000
Dividends paid------------------------------------------------ (40,000)
Net cash provided by financing activities---------------------------------------100,000
Net increase (decrease in cash) --------------------------------------------------$35,000
Cash and cash equivalents, beginning of year------------------------------------40,000
Cash and cash equivalents, end of year---------------------------------------- $75,000
Statements of Cash Flows: A Second Look
Alem Corporation’s statement of cash flows was illustrated above.
Now that we have explained the nature and computation of each cash flow in that statement, a
second illustration is in order. We use this second illustration as an opportunity to illustrate the
indirect method of reporting net cash flow from operating activities. (Our preceding illustration
uses the direct method). Also, we illustrate two supplementary schedules that often accompany
a statement of cash flows.

Supplementary schedule A: illustrates the determination of net cash flow from operating
activities by the indirect method. The purpose of this schedule is to explain the differences
between the reported net income and the net cash flow from operating activities. This
supplementary schedule also is required of companies that use the direct method of reporting
operating cash flows.

Supplementary schedule B: discloses any “non cash” aspects of the company’s investing and
financing activities. This type of supplementary schedule is required whenever some aspects of
the company’s investing and financing activities do not coincide with cash flows occurring with
in the current period.
 ALEM CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2004
Cash flows from operating activities:
Net cash flow from operating activities
(See supplementary schedule A) ----------------------------------------------$50,000
Cash flows from investing activities:
Purchases of marketable securities-------------------------------$(65,000)
Proceeds from sales of marketable securities----------------------40,000
Loans made to borrowers----------------------------- ------------- (17,000)
Collections on loan---------------------------------------------------12,000
Cash paid to acquire plant assets:
(See supplementary schedule B) -------------------------------- (160,000)
Proceeds from sale of plant assets--------------------------------- 75,000
Net cash used by investing activities------------------------------------------------- (115,000)
Cash flows from financing activities:
Proceeds from short-term borrowing ----------------------------$45,000
Payments to settle short-term debts------------------------------ (55,000)
` Proceeds from issuing bonds payable----------------------------100,000
Proceeds from issuing capital stock------------------------------- 50,000
Dividends paid----------------------------------------------------- (40,000)
Net cash provided by financing activities------------------------------------------- 100,000
Net increase (decrease) in cash------------------------------------------------------- $35,000
Cash and cash equivalents, beginning of year----------------------------------------40,000
Cash and cash equivalents, end of year----------------------------------------------$75,000
 Supplementary Schedule A: net cash flow from operating activates
Net Income------------------------------------------------------------$65,000
Add: Depreciation expense----------------------------------- -------40,000
Decrease in accrued interest receivable--------------------------1,000
Increase in accounts payable ------------------------------------15,000
Increase in accrued liabilities--------------------------------------7,000
Non-operating loss on sales of marketable securities----------4,000
Subtotal----------------------------------- -------------------------- $132,000
Less: Increase in accounts receivable----------------$30,000
Increase in inventory------------------------------10,000
Increase in prepayments----------------------------3,000
Decrease in accrued liabilities-------------------- 8,000
Non-operating gain on sales of plant assets-----31,00082,000
Net cash flow from operating activities-------------------------- $50,000

 Supplementary schedule B: non-cash investing and financing activities

Purchases of plant assets------------------------------------------- $200,000
Less: Portion financed through issuance of long-term debt-------40,000
Cash paid to acquire plant assets----------------------------------- $160,000
Demonstration Problem for your Review
You are the chief accountant for company ‘A’. Your assistant has prepared an income statement
for the current year, and also developed the following “Additional information “by analyzing
changes in the company’s balance sheet accounts.
Company A
Income Statement
For the Year Ended December 31, 2004.
Revenues
Net sales----------------------------------- ----------------------------------------$9,500,000
Interest income------------------------------------------------------------------------320,000
Gain on sales of marketable securities-----------------------------------------------70,000
Total revenue and gains---------------------------------------------------- $9,890,000
Costs and expenses:
Cost of goods sold--------------------------------------------------$4,860,000
Operating expenses (including depreciation of $700,000) ---- 3,740,000
Interest expense---------------------------------------------------- 270,000
Income taxes---------------------------------------------------------- 300,000
Loss on sales of plant assets------------------------------------------90,000
Total costs, expenses, and losses---------------------------------------- 9,260,000
Net Income ----------------------------------------------------------------------------- $630,000
Information about changes in the company’s balance sheet accounts over the year is summarized
below:
1. Accounts receivable decreased by $85,000
2. Accrued interest receivable increase by $ 15,000.
3. Inventory decreased by $280,000 and accounts payable to suppliers of merchandise
decreased by $240,000
4. Short-term prepayments of operating expenses decreased, by $18,000, and accrued
liabilities for operating expenses increased by $35,000.
5. The liabilities for accrued interest payable decreased by $16,000 during the year.
6. The liability for accrued income taxes payable increased by $25,000 during the year.
7. The following schedule summarizes the total debit and credit entries during the year in other
balances sheet accounts:
 Debit Credit
Entries Entries
Marketable securities-------------------------------- $120,000 $210,000
Notes receivable (cash loans made to others) ----- 250,000 190,000
Plant assets (see paragraph 8) --------------------- 3,800,000 360,000
Notes payable (short-term borrowing) ------------- 620,000 740,000
Bonds payable-----------------------------------------------------------1,100,000
Capital stock---------------------------------------------------------------- 50,000
Additional paid-in capital (from issuance of stock) -----------------840,000
Retained earnings (see paragraph 9 below) ----------320,000 630,000
8. The $360,000 in credit entries to the plant assets account are net of any debits to accumulated
depreciation whether plant assets were retired. Thus, the $360,000 in credit entries represents
the book value of all plant assets sold or retired during the year.
9. The $320,000 debit to retrained earnings represents dividends declared and paid during the
year. The $630,000 Credit entry represents the net income shown in the income statement.
10. All investing and financing activities were cash transactions.
11. Cash and cash equivalents amounted to $448,000 at the beginning of the year, and to
$330,000 at year-end.
Instruction: - You are to prepare a statement of cash flows for the current year. Place brackets
around amount representing cash outlays. Show separately your computations of the following
amounts:
1. Cash received from customers
2. Interest received
3. Cash paid to suppliers and employees
4. Interest paid
5. Income taxes paid
6. Proceeds from sales of marketable securities
7. Proceeds from sales of plant assets
8. Proceeds from issuing capital stock.
Solution to Demonstration Problem
Company ‘A’
 Statement of Cash Flows
For the Year Ended December 31, 2004
Cash flows from operating activities:
Cash received from customer (1) ------------------------------$9,585,000
Interest received (2) -------------------------------------------------305,000
Cash provided by operating activities -----------------------------------$9,890,000
Cash paid to suppliers and employees (3) ------------------$(7,807,000)
Interest paid (4) --------------------------------------------------- (286,000)
Income taxes paid (5) -------------------------------------------- (275,000)
Cash disbursed for operating activities--------------------------------$(8,368,000)
Net cash flow from operating activities---------------------------------------------- $1,522,000
Cash flows from investing activities:
Purchases of marketable securities----------------------------$(120,000)
Proceeds from sales of marketable securities (6) --------------280,000
Loans made to borrowers--------------------------------------- (250,000)
Collections on loans----------------------------------------------- 190,000
Cash paid to acquire plant assets----------------------------- (3,800,000)
Proceeds from sales of plant sales ------------------------------ 270,000
Net cash used by investing activities------------------------------------------------ (3,430,000)
Cash flow from financing activities:
Proceeds from short-term borrowing--------------------------$740,000
Payments to settle short-term debts--------------------------- (620,000)
Proceeds from issuing bonds payable-------------------------1,100,000
Proceeds from issuing capital stock (8) ------------------------890,000
Dividends paid--------------------------------------------------- (320,000)
Net cash provided by financing activities------------------------------------------$1,790,000
Net increase (decrease) in cash------------------------------------------------------$(118,000)
Cash and cash equivalents, beginning of year-------------------------------------- $448,000
Cash and cash equivalents, end of year----------------------------------------------$330,000

Supporting computations:
1. Cash received from customers:
Net sales----------------------------------------------------------------------- $9,500,000
Add: decrease in accounts receivable------------------------------------------ 85,000
Cash received from customers----------------------------------------------- $9,585,000

2. Interest received:
Interest income-------------------------------------------------------------------$320,000
Less: increase in accrued interest receivable---------------------------------(15,000)
Interest received----------------------------------------------------------------- $305,000
3. Cash paid to suppliers and employees:
Cash paid for purchases of merchandise:
Cost of goods sold--------------------------------------------------------------$4,860,000
Less: decrease in inventory------------------------------------------------------(280,000)
Net purchases-----------------------------------------------------------$4,580,000
Add: Decrease in accounts payable to suppliers-------------------------------240,000
Cash paid for purchases of merchandise------------------------------------$4,820,000
Cash paid for operating expenses:
Operating expenses------------------------------------------------------------$3,740,000
Less: Depreciation (a “non cash” expense) -------------$700,000
Decrease in prepayments------------------------------ 18,000
Increase in accrued liabilities
for operating expense----------------------------------35,000 (753,000)
Cash paid for operating expenses--------------------------------------------$2,987,000
Cash paid to suppliers and employees
($4,820,000 + $2, 987,000) ----------------------------------------$7,807,000
4. Interest paid:
Interest expenses-----------------------------------------------------------------$270,000
Add: decrease in accrued interest payable--------------------------------------16,000
Interest paid----------------------------------------------------------------------$286,000
5. Income taxes paid:
Income taxes expense----------------------------------------------------------$300,000
Less: Increase in accrued income taxes payable-----------------------------(25,000)
Income taxes paid--------------------------------------------------------------$275,000

6. Proceeds from sales of marketable securities:

Cost of marketable securities sold (credit
entries to the marketable securities account--------------------------------$210,000
Add: Gain reported on sales of marketable securities-----------------------70,000
Proceeds from sales of marketable securities-----------------------------$280,000
7. Proceeds from sales of plant assets:
Book value of plant assets sold (paragraph 8) ----------------------------$360,000
Less: Loss reported on sales of plant assets---------------------------------(90,000)
Proceeds from sales of plant assets-----------------------------------------$270,000
8. Proceeds from issuing capital stock;
Amounts credited to the capital stock account-----------------------------$50,000
Add: Amounts credited to additional paid in capital account----------- 840,000
Proceeds from issuing capital stock---------------------------------------$890,000
Self-Test Questions
1. The Statement of cash flows is designed to assist users in assessing each of the following,
except:
A. The ability of a company to remain solvent
B. The company’s profitability.
C. The major sources of cash receipts during the period
D. The reasons why net cash flow from operating activities differ from net income.
2. The cash flows shown in the statement of cash flows are grouped in to the following major
categories:
A. Operating activities, investing activities and financing activities
B. Cash receipts, cash disbursements, and non cash activities.
C. Direct cash flows and indirect cash flows.
D. Operating activities, investing activities, and collecting activities.

3. Shown below is a list of various cash payments and cash receipts:

Cash paid to suppliers and employees-----------------------------$400,000
Dividends paid-----------------------------------------------------------18,000
Interest paid--------------------------------------------------------------12,000
Purchases of plant assets-----------------------------------------------45,000
Interest and dividends received ----------------------------------------17,000
 Payments to settle shot-term debt--------------------------------------29,000
Income taxes paid--------------------------------------------------------23,000
Cash received from customers-----------------------------------------601,000
Based only up on the above items, net cash flows from operating activities is:
a. $138,000
b. $91,000
c. $183,000
d. $120,000

Solution
1. B
2. A
3. C

Problem

Lo3:- Reconcile takings

Use of a Bank

 Contributes significantly to good internal control over cash.

 Minimizes the amount of currency that must be kept on hand.
 Facilitates the control of cash because a double record is maintained of all bank
transactions – one by the business and one by the bank.
 The asset account Cash maintained by the company is the “flip-side” of the bank’s
liability account for that company. It should be possible to reconcile these accounts—
make them agree—at any time.
 Bank statements – Each month the company receives a bank statement showing its bank
transactions and balances. Some transactions and balances shown include:
 Checks paid and other debits that reduce the balance in the depositor’s account.
 Deposits and other credits that increase the balance in the depositor’s account.
 The account balance after each day’s transactions.

 Bank statements are prepared from the bank’s perspective.

  Every deposit the bank receives is an increase in the bank’s liabilities (an accounts
payable) to the depositor.
 Every check the bank funds or pays for a depositor decreases the bank’s liability (an
accounts payable) to the depositor.

Information Sheet: 1 Prepare a Bank Reconciliation

The bank and the company maintain independent records of the checking account. The two
balances are seldom the same because of:

 Time lags that prevent one of the parties from recording the transaction in the same period.
 Days elapse between the time a check is written and dated and the date it is paid by the
bank.
 A day may pass between the time receipts are recorded by the company and the time they
are recorded by the bank.
 A time lag may occur when the bank mails a debit or credit memo to the company.

 Errors by either party in recording transactions. The incidence of errors depends on the
effectiveness of internal controls maintained by the company and the bank. Bank errors are
infrequent.

 Reconciliation procedure – In reconciling the bank account, it is customary to reconcile the

balance per books and balance per bank to their adjusted (correct or true) cash balances. To
obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by
an employee who has no other responsibilities related to cash.

 The reconciliation schedule is divided into two sections – balance per bank and balance per
books. The following steps should reveal all the reconciling items causing the difference
between the two balances:
1. Compare the individual deposits on the bank statement with the deposits in transit
from the preceding bank reconciliation and with the deposits per company records or
copies of duplicate deposit slips. Deposits recorded by the depositor that have not
been recorded by the bank represent deposits in transit and are added to the balance
per bank.
2. Compare the paid checks shown on the bank statement or the paid checks returned
with the bank statement with (a) checks outstanding from the preceding bank
reconciliation and (b) checks issued by the company as recorded in the cash payments
journal. Issued checks recorded by the company that have not been paid by the bank
represent outstanding checks that are deducted from the balance per bank.
3. Note any errors discovered in the foregoing steps and list them in the appropriate
section of the reconciliation schedule. All errors made by the depositor are
reconciling items in determining the adjusted cash balance per books. In contrast, all
errors made by the bank are reconciling items in determining the adjusted cash
balance per bank.
4. Trace bank memoranda to the depositor’s records. Any unrecorded memoranda
should be listed in the appropriate section of the reconciliation schedule.
 Entries from Bank Reconciliation – Each reconciling item used in determining adjusted
cash balance per books should be recorded by the depositor. If these items are not
journalized and posted, the Cash account will not show the correct balance.

 Electronic Funds Transfer (EFT) System

 A new approach developed to transfer funds among parties without the use of paper
(deposit tickets, checks, etc.). The approach, called electronic funds transfers (EFT),
uses wire, telephone, telegraph, or computer to transfer cash from one location to another.

Self Check
1. The accounting staff of Trans-Fax corporation has assembled the following information
for the year ended December 31,2004:
Cash sales-----------------------------------------------------------------$380.000
Credit sales --------------------------------------------------------------3,420.000
Collections on accounts receivable-----------------------------------3, 130.000
Cash transferred from the money market fund to
the general bank account-----------------------------------------------180,000
Interest and dividends received--------------------------------------------40,000
Purchases (all on account) ---------------------------------------------1, 950.000
Payments on accounts payable to merchandise suppliers-----------2,000.000
Cash payments for operating expenses----------------------------------800,000
Interest paid-------------------------------------------------------------------95,000
Income taxes paid-----------------------------------------------------------180,000
Loans made to borrowers--------------------------------------------------220,000
Collections o loans (excluding receipts of interest) -------------------145,000
Cash paid to acquire plant assets-------------------------------------- 1,640,000
Book value of plant assets sold---------------------------------------------70,000
Gain on sales of plant assets-------------------------------------------------35,000
Proceeds from issuing capital stock------------------------------------1,355.000
Dividends paid----------------------------------------------------------------180,000
Cash and cash equivalents, beginning of year---------------------------450,000
Cash and cash equivalents, end of year---------------------------------------? –
Instructions
Prepare a statement of cash flows. Place brackets around amounts representing cash out flows.
Many of the items above will be listed in your statement with out change. However, you will
have to combine certain given information to compute the amounts of:
4. Collections from customers
5. Cash paid to suppliers and employees and
6. Proceeds from sales of plant assets.