Substantially, Cash flow statement relates with flow of cash in and out of the business it speculates the liquidity of a firm. Commonly known as flow of funds statement it fascinate both the current operating results and associated changes in a balance sheet accounts. It makes investors understand how the company is running from where the money is coming and where it is spend. Cash flow statement bring upon people like accounting personnel, lenders or creditors, investors, employees, stockholders.
It includes inflows and outflows of cash and cash equivalent and excludes transactions that do not affect the cash receipts and payment. The calculation in it is quite complex and makes students incapacitated to solve these problems. With proper course of action from cash flow statement homework solutions help students can get rid of these difficulties.
Cash flow statement is done on three basic activities:
- a) Financial activities – It measures in product, sale of a products, delivery of organisation merchandise and receiving payment from customer ,interest received on loans, payment to suppliers and employees, merchandising.
- b) Operating activities– It includes buying and selling of land, building and equipments, maintaining loans with providers and customers payments. Cash flow statement homework solutions tip cash flow is calculated by making adjustments to net income by adding/subtracting differences in revenue.
- c) Investing activities– It controls all the financial activities taking place in an organisation like inflow and outflow of cash from banks and stockholder. Cash out item are those which are brought by investing on it as cash is used to buy land, building, equipment or any marketable securities.
Cash flow statement is vast topic and an attempt is made through this blog to clear student’s doubts and provide them relatively best knowledge relating this topic.
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There are two types of methods in Cash flow statement:
- a) Direct method: Under this method net cash flows from operating activities are driven by adding/subtracting of interest, cash payments for purchase, controlling expenses, income tax, etc.
- Cash Collections: The cash collection done during accounting from any consumer is defined as cash collection.
Cash Flow Statement Homework Solution
Tip: Cash collection receipts from sales= sales+ decrease/-increase in accounts receivable
- Cash payment for income taxes:
The cash paid for any kind of taxes comes under this.
- Cash payment for purchase:
Cash flow which takes place during the time of purchase. It is the cash outflow done for purchase by suppliers. Cash flow statement homework solution
Tip: Cash payment for purchase= cost of goods sold+ increase/-decrease in inventory+ decrease/-increase in accounts payable
- Cash payment for operating:
It includes cash from consumers and cash paid to suppliers and also provides balancing of net income to cash providers. Cash flow statement homework solutions
Tip: Cash flow for operating expenses= operating expenses+ increase/decrease in expenses + decrease/-increase in liabilities
- b) Indirect method:
It adapts the net income, does not affects cash in operating activities, always add on depreciation income. In simple words you can say it uses net income as a beginning point to fabricate cash flow statement, then adjusting all non-cash items transaction and then again adjusting cash based transactions.
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Here is Cash flow statement homework solution example:
FY Ended 31 Dec 2015
Net earnings 2,000,000
Additions to cash
Decrease in accounts receivable 10,000
Increase in accounts payable 10,000
Increase in taxes payable 7,000
Subtractions from cash
Increase in inventory 30,000
Net cash from operation 2,012,000
Cash Flow From Investing
Cash Flow From Financing
Total cash flow 1,522,000