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

2. 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

3. 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, = $24,440

4. 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, – 183 = $18,516

5. 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

6. 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
Depreciation
3,159
1,186

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

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

9. 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
4,674
143

10. End of Appendix A