To simplify and condense the operating activities section, only (suppliers, employees, operating expenses, interest, classes and taxes) of operating cash receipts and cash payments are reported. The difference between cash receipts and cash payments is the net cash provided by operating activities. Cash Receipts from Customers: The income statement reports revenues from customers. To determine the amount of cash receipts, the decrease in accounts receivable is to sales revenues. Conversely, an increase in accounts receivable is deducted from sales revenues, since cash receipts from customers is less than sales revenues. cash receipts from customers The formula to calculate the + Decrease accounts receivable Revenues from or = Cash receipts from customers sales - Increase accounts receivable For an example, accounts receivable decreased $3,000, so that cash receipts from customers were $978,000, calculated as follows: Revenues from + = Increase in A/R Cash receipts from customers $975,000 + $3,000 = $978,000 Cash receipts from customers may also be determined from an analysis of Accounts. the cash payments to suppliers The formula to calculate the major expenditure is for the purchase of merchandise inventory: + Increase in inventories or - Decrease in inventories Cash Payment to AND Cost of Sold = Suppliers + Decrease in accounts payable or - Increase in accounts payable An example of a company reported cost of sold on its income statement of $660,000. To determine purchases, cost of goods sold must be adjusted for the change in inventory. An increase (decrease) in inventory is added to (deducted from) cost of goods sold to arrive at purchases. The company’s inventory increased $10,000. Cash payments to suppliers are then determined by adjusting purchases for the change in accounts payable. An accounts payable increase (decrease) is deducted from (added to) purchases. Thus to combine the two adjustments calculated with the formula as shown as follows: COGS + + Dec. in A/P = Inc. in Inventory Cash Payments to Suppliers
To simplify and condense the operating activities section, only classes (suppliers, employees, operating expenses, interest, and taxes) of operating cash receipts and cash payments are reported. The difference between cash receipts and cash payments is the net cash provided by operating activities. Cash Receipts from Customers: The income statement reports revenues from customers. To determine the amount of cash receipts, the decrease in accounts receivable is to sales revenues. Conversely, an increase in accounts receivable is deducted from sales revenues, since cash receipts from customers is less than sales revenues. The formula to calculate the cash receipts from customers Revenues from sales + Decrease accounts receivable or = Cash receipts from customers - Increase accounts receivable For an example, accounts receivable decreased $3,000, so that cash receipts from customers were $978,000, calculated as follows: Revenues from + Increase in A/R = Cash receipts from customers $975,000 + $3,000 = $978,000 Cash receipts from customers may also be determined from an analysis of Accounts. The formula to calculate the cash payments to suppliers the major expenditure is for the purchase of merchandise inventory: Cost of Sold + Increase in inventories = Cash Payment to Suppliers or - Decrease in inventories AND + Decrease in accounts payable or - Increase in accounts payable An example of a company reported cost of sold on its income statement of $660,000. To determine purchases, cost of goods sold must be adjusted for the change in inventory. An increase (decrease) in inventory is added to (deducted from) cost of goods sold to arrive at purchases. The company’s inventory increased $10,000. Cash payments to suppliers are then determined by adjusting purchases for the change in accounts payable. An accounts payable increase (decrease) is deducted from (added to) purchases. Thus to combine the two adjustments calculated with the formula as shown as follows: COGS + Inc. in Inventory + Dec. in A/P = Cash Payments to Suppliers
Chapter_14_Statement_of_Cash_Flows.docx