Question

Item Prior year Current year Accounts payable 8,178.00 7,930.00 Accounts receivable 6,091.00 6,603.00 Accruals 950.00 11,393.00 Cash ??? Common Stock 11,349.00 12,735.00 COGS 12,673.00 18,353.00 Current portion long-term debt 4,938.00 4.988.00 Depreciation expense 2,500 1111.!!!!!!!!!! 2,754.00 Interest expense 7133 Inventories 4,199.00 4,814.00 Long-term debt 13.751.00 14,577.00 Net fixed assets 50,584.00 54,718.00 Notes payable 4,313.00 9,927.00 Operating expenses (excl. depr.) 13,977 18,172 Retained earnings 28,638.00 29.442.00 Sales 35,119 45,463.00 Taxes 2,084 2,775

1.What is the Cash Flows from Operations?

2.What is the Cash Flows from Finance?

3.What is the Cash Flows from Investing?

4.What is the firms change in cash from prior year to current year?

Answer 1

Statement of cash flows is prepared for a reporting period for analyzing reasons for change in cash balance between two reporting periods. It is broadly categorised into operating activities, investing activities and financing activities. Out of the three, operating activities specifically helps to analyze reason for change in cash balance due to operating activities of the business. There are two methods to prepare operating activities block such as direct and indirect method. Under direct method, operating activities block contains data of cash received from sale of goods or services and cash paid to suppliers, vendors for services, interest expense and income taxes. It means that non-cash incomes or expenses and net income reported for the period are not considered under direct method while preparing statement of cash flows. Similarly, cash flow from investing activities contain data related to cash received from sale of assets and cash paid to purchase assets. Other data in terms beginning or ending balance of assets, etc. are not considered in the statement of cash flows, unless they are required to calculate cash receipt or cash paid for assets. Cash flow from financing activities contain data related to cash received from issuing fresh common stock or preferred stock or debt instruments, etc. and cash paid to discharge debt instruments or firm's treasury stock or cash dividends. Other data in terms beginning or ending balance of common stock, etc. are not considered in the statement of cash flows, unless they are required to calculate cash receipt or cash paid for as mentioned above. Therefore,

1) $2,942 [Ref: Workings] Cash Flow from Operating Activities: Net Income (Current Year) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense Decrease in Accounts Payable Increase in Accounts Receivable Increase in Accruals Increase in Inventories Net Cash flow from operating activities $2,754 $248 $512 $443 $615 [Non-cash expense and so added back] [$8,178 - $7,930 --> Increases working capital and so deducted] [$6,603 - $6,091 --> Increases working capital and so deducted] ($1,393 - $950 --> Decreases working capital and so added] [$4,814 - $4,199 --> Increases working capital and so deducted] $4,764 2) Cash Flow from Investing Activities: Cash paid to purchase fixed assets -$6,888 [Ref: Net fixed assets and Dep. Expense --> $54,718 + $2,754 - $50,584 = $6,888] 3) Cash Flow from Financing Activities: Cash realized from new common stocks Cash realized from new long-term debt Cash realized from new note payable Dividends declared during the year Net Cash flow from financing activities $1,386 $876 $5,614 $2,138 ($12,735 - $11,349] [Ref: Long-term debt and Current portion of LTD --> $14,577 + $50 - $13,751 = $876] [$9,927 - $4,313] [Ref: Retained Earnings & Net Income --> $28638 + $2942 - $29442] $5,738 4) Net Cash flow from operating activities Net Cash flow from investing activities Net Cash flow from financing activities Net change (INCREASE) in cash bal. during the year $4,764 [Ref: Part-1] $6,888 [Ref: Part-2] $5,738 [Ref: Part-3] $3,614 [$4764 - $6888 + $5738]

Workings: Current Yr $45,463 Sales Less: COGS -$18,353 Depreciation Expense Interest Expense Operating Expenses (excl. dep.) Current portion of LTD Taxes Net Income $2,754 $417 $18,172 $50 ($4,988 - $4,938] $2,775 $2,942