Preparing the Statement of Cash Flows by the Direct Method Appendix A

Direct Method Cash flows from operating activities: Receipts: Collections from customers Interest received Dividends received Total cash receipts Payments: To suppliers To employees For interest For income tax Total cash payments Net cash provided by operating activities

Sales – increase in accounts receivable If accounts receivable is increasing, then our customers are charging more and paying less Receipts From Customers Sales Revenue + Decrease in Accounts Receivable - Increase in Accounts Receivable Sales – increase in accounts receivable $24,623 - 183 = $24,440

If accounts payable increases, you are charging more, paying less If inventory increases, you’re going to have to pay cash for it Payments to Suppliers Cost of Goods Sold + Increase in Inventory + Decrease in Accounts Payable - Decrease in Inventory - Increase in Accounts Payable Cost of goods sold + increase in inventory - increase in accounts payable 18,048 + 651 – 183 = $18,516

If accrued liabilities increase, you are charging more, paying less Payments for Operating Expenses Operating Expense + Increase in Prepaids + Decrease in Accrued Liabilities - Decrease in Prepaids - Increase in Accrued Liabilities Operating expenses – increase in accrued liabilities $4,883 – 90 = $4,793

EA-31 Acquisitions of property and equipment: Property & Equipment You start with $3,428, but depreciation reduces the carrying value of the asset. If nothing else had happened this period, the balance should have been $3,159. Since the ending balance is $4,345, we must have bought additional assets EA-31 Acquisitions of property and equipment: Property & Equipment Beg bal 3,428 End bal 4,345 269 Depreciation 3,159 1,186

EA-31 Borrowing: Long-term liabilities Beg bal 464 End bal 478 14

EA-31 Proceeds from issuance of common stock: Common stock Beg bal 446 End bal 676 230

EA-31 Payment of cash dividends: Retained Earnings Beg bal 3,788 You start with $3,788. Net income increases retained earnings. If no dividends had been declared, the retained earnings balance should have been $4,674. Since the balance is $4,531, we declared dividends for the difference EA-31 Payment of cash dividends: Retained Earnings Beg bal 3,788 End bal 4,531 Net inc. 886 4,674 143

End of Appendix A