【正文】 by the Financial Accounting Standards Board (FASB). Note: The total amount of cash flow from operating activities will be the same for both direct and indirect methods. Investing and Financing activities sections will be identical for both methods. C14 23 Advantages of Using the Indirect Method 1. Focuses on the differences between ine and cash flow from operations. 2. Reveals the relationship between the ine statement, the balance sheet, and the statement of cash flows. 3. Less costly to prepare. 4. Must be prepared as a supplemental report even if the direct method is used. 5. 98 percent of panies surveyed use the indirect method. C14 24 Cash flows from operating activities: Cash flows from investing activities: Cash flows from financing activities: NetSolutions Statement of Cash Flows – Direct Method For the Month Ended November 30, 2023 Cash received from customers $ 7,500 Deduct cash payments for expenses and payment to creditors 4,600 Net cash flow from operating activities $ 2,900 Cash payments for acquiring land (10,000) Cash received as owner’s investment $15,000 Deduct cash withdrawal by owner 2,000 Net cash flow from financing activities 13,000 Net cash flow and ending cash balance $ 5,900 C14 25 Cash flows from operating activities: Cash flows from investing activities: Cash flows from financing activities: Net ine, per ine statement $ 3,050 Add increase in accounts payable 400 Deduct increase in supplies (550) Net cash flow from operating activities $ 2,900 Cash payments for acquiring of land (10,000) Cash received as owner’s investment $15,000 Deduct cash withdrawal by owner 2,000 Net cash flow from financing activities 13,000 Net cash flow and ending cash balance $ 5,900 NetSolutions Statement of Cash Flows – Indirect Method For the Month Ended November 30, 2023 C14 26 Cash flows from operating activities: NetSolutions Statement of Cash Flows – Direct Method For the Month Ended November 30, 2023 Cash flows from operating activities: NetSolutions Statement of Cash Flows – Indirect Method For the Month Ended November 30, 2023 Cash received from customers $ 7,500 Deduct cash payments for expenses and payment to creditors 4,600 Net cash flow from operating activities $ 2,900 Net ine, per ine statement $ 3,050 Add increase in accounts payable 400 Deduct increase in supplies (550) Net cash flow from operating activities $ 2,900 C14 27 Cash flows from operating activities: NetSolutions Statement of Cash Flows – Direct Method For the Month Ended November 30, 2023 Cash flows from operating activities: NetSolutions Statement of Cash Flows – Indirect Method For the Month Ended November 30, 2023 Cash received from customers $ 7,500 Deduct cash payments for expenses and payment to creditors 4,600 Net cash flow from operating activities $ 2,900 Net ine, per ine statement $ 3,050 Add increase in accounts payable 400 Deduct increase in supplies (550) Net cash flow from operating activities $ 2,900 C14 28 Cash Relationships and Cash Flows Cash Liabilities Stockholders’ Equity Balance Sheet Noncash Assets Assets = Liabilities + Stockholders’ Equity Cash + Noncash Assets = Liabilities + Stockholders’ Equity Cash = Liabilities + Stockholders’ Equity – Noncash Assets C14 29 Cash Liabilities Stockholders’ Equity Balance Sheet Noncash Assets Assets = Liabilities + Stockholders’ Equity Cash + Noncash Assets = Liabilities + Stockholders’ Equity Cash = Liabilities + Stockholders’ Equity – Noncash Assets Cash Relationships and Cash Flows C14 30 Cash Liabilities Stockholders’ Equity Balance Sheet Noncash Assets The cash flows are determined by analyzing liabilities, stockholders’ equity, and noncash assets. Assets = Liabilities + Stockholders’ Equity Cash + Noncash Assets = Liabilities + Stockholders’ Equity Cash = Liabilities + Stockholders’ Equity – Noncash Assets 1 2 3 1 2 3 Cash Relationships and Cash Flows C14 31 Determine the debit or credit change of each item above. Changes in Current Accounts Change Accounts 2023 2023 Debit Credit Trade receivables () $74,000 $65,000 Inventories 172,000 180,000 Accounts payable (mdse.) 43,500 46,700 Accrued expenses payable 26,500 24,300 Ine taxes payable 7,900 8,400 9,000 8,000 3,200 2,200 500 C14 32 Changes in Current Accounts Change Accounts 2023 2023 Debit Credit Trade receivables () $74,000 $65,000 Inventories 172,000 180,000 Accounts payable (mdse.) 43,500 46,700 Accrued expenses payable 26,500 24,300 Ine taxes payable 7,900 8,400 9,000 8,000 3,200 2,200 500 These debit changes are subtracted from ine in the operating activities section of the statement of cash flows. Think of these debits as deductions from ine in arriving at cash flow from operations. C14 33 Changes in Current Accounts Change Accounts 2023 2023 Debit Credit Trade receivables () $74,000 $65,000 Inventories 172,000 180,000 Accounts payable (mdse.) 43,500 46,700 Accrued expenses payable 26,500 24,300 Ine taxes payable 7,900 8,400 9,000 8,000 3,200 2,200 500 These credit changes are added to ine in the operating activities section of the statement of cash flows. Think of these credits as additions to ine in arriving at cash flow from operations. C14 34 Cash flows from operating activities: Operating Activities – Indirect Method Start with the accrual basis ine shown on the ine statement. Net ine, per ine statement $108,000