Question
2. Study and practice preparing the Statement of Cash Flows, both indirect and direct approaches. Use tabular, ledger, or T accounts and journal entries in
2. Study and practice preparing the Statement of Cash Flows, both indirect and direct approaches. Use tabular, ledger, or T accounts and journal entries in so doing. As an example, complete the exercise below A and B.
- Ledger accounts, and direct versus indirect cash flows exercise:
Accounts Receivable: beginning balance 6000, ending balance 39000, sales is 40,000, write-offs 1000, collections 2000, write-off reinstatement 3000, NSF check from customer 3000. Put this data in T account form and solve for sales returns and allowances.
Unearned Revenue for Services, bb 8000,eb 10000 unearned revenue earned during the year 14000. Fully analyze this account.
Inventory, bb 0; eb 9000, cost of goods sold 10000. Accounts Payable, bb 2000, eb 11000. Find purchases, and fully analyze these accounts if there is a purchase refund for defective products of 1000.
Wages Payable, bb is ?; eb 14000, wages expense, 12000; wages paid, 2000.
Accumulated Depreciation, bb 1000, eb is ?, depreciation expense is 9000. There is a charge to this account for a major overhaul of a machine of 5000. Equipment, whose book value is 10,000, is sold for 19,000; accumulated depreciation on this equipment is 3000.
Land purchased ten years ago for 20,000 was sold for 15,000.
Allowance for Bad Debts, bb 2000; eb 7000.
Retained Earnings, bb 5000, eb 10000, stock dividend declared and issued 5000, find cash dividend declared ?
B.
After you have fully analyzed the accounts above, preparing a journal entry for each account transaction, you are to prepare a statement of cash flows, operating section using (1) indirect approach, and (2) direct approach. With the indirect approach, be sure to show all the specific journal entries reconciling net income with the net cash from operating activities.. With the direct approach, be sure to show the ledger or T accounts, labeling each number. Also, show which items and amounts belong in the investing and financing sections. The statement of cash flows is emphasized throughout the course, not just operating, but also investing and financing activities.
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