Direct cash flow statement

Question 1

Cash receipts from customers

Answer 1

Sales revenue
+ decrease in AR or
- increase in AR
= cash receipts from customers OR

Can analyze the difference in AR
ending balance - sales revenue - beg inventory = receipts from customers

Question 2

Cash paid for goods

Cash payments to suppliers

Answer 2

When inventory increases, purchases for the year have exceeded cost of goods sold. So inventory gets added to COGS.
Cost of goods sold
\+ increase in inventory or
- decrease in inventory
= cost of goods purchased. Then:

+ decrease in AP or
- increase in AP
= cash paid to suppliers
When AP increases, purchases on accrual bases are higher than a cash basis. So company deducts the increase in AP from purchases (as we still have the cash).

Question 3

Cash paid to suppliers for inventory

Answer 3

beginning AP balance + inventory purchases - ending inventory = cash paid to suppliers for inventory

Question 4

Cash payments for operating expenses

Answer 4

operating expenses (less any depreciation expenses that may have been included)
+ increase in Prepaid expenses or
- decrease in prepaid expenses

+ decrease in accrued expenses payable
- increase in accrued expenses payable

Adjusting prepaid expenses. If prepaid expenses increased, cash paid for operating expenses is higher than what was reported on income statement. So the increase in prepaid expenses gets added to operating expenses.

Question 5

Cash payments for income taxes

Answer 5

Income tax expense
+ decrease in income tax payable
- increase in income tax payable

Question 6

Cost of goods sold

Answer 6

Beg inventory + new purchases - ending inventory = COGS

Question 7

Depreciation expense and loss/gain on equipment for direct method

Answer 7

Not shown on statement because it is a non-cash charge.