Question

Account	June 30 2020	June 30 2019
	$	$
Cash and cash equivalents	95,800	64,000
Debtors	231,600	157,200
Inventory	96,720	104,400
Plant and equipment	100,000	75,000
Accumulated depreciation – plant and equipment	(40,000)	(29,000)
Total assets	484 120	371,600
Creditors	71,000	74,400
Accrued expenses	30,000	33,000
Long-term loan	100,000	50,000
Capital and reserves	283,120	214,200
Total liabilities and owners equity	484 120	371,600
Sales	440,000
Less: Cost of goods sold	296,000
Gross profit	144,000
Operating expenses (including depreciation)	84,000
Net profit	60,000

Note: 1. No plant and equipment was sold during the year.

2. Dividends of $20,000 in cash were paid during the year.

3. All sales are on credit.

REQUIRED:

Prepare a statement of cash flows for the year ended 30 June 2020 using the direct method.

Triple Threat

Statement of Cash Flows for the year ended 30 June 2020

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Cash at end of the year

Answer 1

Cash flow statement : This statement is prepared by an organisation to evaluate fluctuation of cash in organisation, which will be done by two types

1.Cash inflow.

2.Cash outflow.

Whenever cash comes in organisation it is called Cash inflow alternatively Cash outflow means outgoing of cash from the organisation.

Cash flow statement can be prepared by two methods-

1. Direct method - Relates to business of orgainsation

2. Indirect methods - calculation will be done by using non business transaction.

Further we can devide cash flow statement into three sub categories as follows

1. Cash flow from operating activities

2. Cash flow from Investing activities

3. Cash flow from Financing activities

Step by step guide for preparation of cash flow statement :

Step:1 First Calculate Net profit before interest and tax and extra-ordinary items(if any)

Step:2 Calculate cash flow from operating activities and add it to net profit calculated above.

Step:3 Do adjustment for tax paid and interset(on short term borrowing) and deduct from cash flow from operating activities calculated above.

Step:4 Calculate cash flow from investing activities i.e. change in assets of organisation ( purchase of a asset to be deducted and sale of a asset to be added)

Step:5 Calculate Cash flow from financing activities i,e, change in liability side of balance sheet.

Step:5 Add all activities and this is Cash flow from all activities

Step:6 Add cash balance in the beginning of financial year.

Step:7 Check if the addition of step 5 and step 6 match with Closing balnace at the end of the financial year.

Now coming to the answer of your question

Cash flow statement for the year ending 30 june 2020

Notes to accounts :

1. Calculation of collection from debtors

Opening balance 157200

Add: Sales 440000

Less: Closing balance (231600)

Collection from debtors 365600

2.Calculation of  Payment to Creditors

Purchase = Closing stock + Cost of goods sold - opening stock

Purchase = 104400+296000-96720 = 303680

Opening balance of Creditors 74400

Add: Purchases   303680

Less Closing balance of Creditors (71000)

Payment to Creditors 307080

3.Calculation of depreciation of current year

Closing balance of accumulated depreciation 40000

Opening balance of accumulated depreciation(29000)

Depreciation of current year 11000

4. Calculation of Cash Operating expenses of current year

Total operating expenses 84000

Less : Depreciation of current year (11000)

Cash operating expenses 73000

5. Calculation of operating expenses paid during the year

Opening balance of operating exps. 33000

Add: Cash operating expenses current year   73000

Less: Closing balance of operating exps (30000)

Operating expenses paid during the year 76000

Particulars	Amount	Amount
(A) Cash flow from Operating Activities Net Profit before tax and extra ordinary items Adjustment For Business transactions Collection from Debtors Payment to Creditors Payment of operating expenses	60000 365600 (307080) (76000)
Net Cash Generated from operating activities	42520	42520
(B) Cash flow from Investing Activities Purchase of plant and machinery (75000-10000) – (29000-40000)	(14000)
Net Cash Generated from Investing activities	(14000)	(14000)
(C) Cash flow from financing Activities Long term loan taken (50000-100000) Dividend paid Issue of shares	50000 (20000) (26720)
Net Cash Generated from Financing activities		3280
Net Cash Generated from all activities		31800
Add: Cash in the beginning		64000
Cash at the end		95800