Example: Company reports $ 800,000 of sales on its income statement.

On its
balance sheet it reports beginning and ending balances of Accounts
Receivable in the amounts of $ 68,000 and $ 60,000 respectively. What is
the cash collected from sales?

Example: Company B had beginning and ending inventories of $ 40,000 and $

35,000 respectively, and beginning and ending Accounts Payable of $
20,000 and $ 17,000 respectively. On its income statement, it reported
COGS of $ 169,000. What is cash paid for purchases?

Beginning inventory 40,000

Purchases 164,000
Ending inventory (35,000)
--------------------------------------
COGS 169,000
--------------------------------------
Example: Company C reports beginning and ending balances in its Wages
Payable account of $ 10,000 and $ 50,000 respectively, while on its income
statement it shows wages expense of $ 70,000. What is cash paid for
wages?

Wages expense (as per income statement) 70,000

+ Beginning Payable 10,000
- Ending Payable (50,000)
- Beginning Prepaid
+ Ending Prepaid
Cash paid for wages 30,000

Example: Company D reports interest expense of $ 30,000 on its income

statement. On its comparative balance sheets, it shows $ 40,000 and $
50,000 for its interest payable. What is cash paid for interest?

Interest expense (as per income statement) 30,000

+ Beginning Payable 40,000
- Ending Payable (50,000)
- Beginning Prepaid
+ Ending Prepaid
Cash paid for interest 20,000

Example: Company E reports insurance expense of $ 60,000, while its

comparative balance sheets show beginning and ending balances for
prepaid insurance in the amounts of $ 70,000 and $ 35,000 respectively.
What is cash paid for insurance?

Insurance expense (as per income statement) 60,000

+ Beginning Payable
- Ending Payable
- Beginning Prepaid (70,000)
+ Ending Prepaid 35,000
Cash paid for interest 25,000
Example: In its income statement for 2009, Company F reported the following:

Sales 810,000
COGS (460,000)
Depreciation Expense (30,000)
Administrative Expenses (175,500)
Tax Expense (69,500)

Balance Sheet: 2008 2009

Accounts Receivable 45,000 41,000

Inventory 51,000 48,000
Prepaid Rent 3,700 4,100
Accounts Payable 37,000 32,500
Salaries Payable 7,500 4,500
Taxes Payable 5,000 7,000

What is cash flow from operations using the direct method?

Cash from sales 814,000

Cash paid for purchases (461,500)
Cash paid for administrative expenses (178,900)
Cash paid for Taxes (67,500)

BI + P – EI = COGS === 51,000 + 457,000 - 48,000 = 460,000

Administrative expenses Tax expense

From income statement 175,500 69,500

- Beginning prepaid (3,700)
+ Ending prepaid 4,100
+ Beginning payable 7,500 5,000
- Ending payable (4,500) (7,000)
178,900 67,500
Example:

Company A wishes to determine its net cash flow from operations for 2009. Partial
balance sheets for 2008 and 2009 indicate the following:

2008 2009

Accounts Receivable 1,000 800

Inventory 700 600
Prepaid insurance 900 400
Accounts Payable 350 500
Dividends Payable 80 100
Wages Payable 400 850
Taxes Payable 200 375

The Income Statement reveals the following information:

Net Income 5,000

Depreciation Expense 2,000
Loss on sale of equipment 1,000
Amortization of Patent 400

Compute Cash flow from operations using the indirect method.

Net income 5,000

+ Depreciation 2,000
+ Amortization 400
+ Loss 1,000
+ Decrease in AR 200
+ Decrease in invent 100
+ Dec. in prepaid 500
+ Inc in AP 150
+ Inc. in DP 20
+ Inc in WP 450
+ Inc in TP 175 4815
Cash flow from operations 9,815

Example: A company’s beginning balance in its Land account was $ 10,000; its ending
balance was $ 17,000. During the period, it sold land with a cost of $ 7,000 for $ 11,000.
How much cash did the company spend on the purchase of land? How do we treat the
gain on the sale of land?
 Cash flows from land:

Inflow of $ 11,000. The gain of $ 4,000 is

removed from cash flow from operations

Outflow of $ 14,000 for purchase

Example:

Asset 2008 2009

Machinery 60,000 95,000
Accumulated Depreciation 20,000 23,000

Depreciation Expense 6,500

Machinery was purchased for $ 40,000. A piece of machinery was sold for a gain of $
1,000. How much was cash received from sale of the machine?

Gain = Selling price – Book value

Book value = Cost – Acc. Depr = 5,000 – 3,500 = 1,500

Selling price = 1,500 + 1,000 gain = 2,500

Example: Company C engaged in the following activities:
1. Purchased equipment for $ 10,000
2. Sold land for $ 4,000
3. Sold its investment in Xerox stock for $ 9,000
4. Collected $ 5,000 on loan
5. Collected $ 250 interest on loan
6. Lent $ 1,500 to Company Y

What is cash flow from investing?

Purchase of equipment (10,000)

Sale of land 4,000
Sale of investment 9,000
Collection loan 5,000
Lending (1,500)
Cash from investing 6,500

Example:

 Bought treasury stock for $ 9,000

 Sold a machine for $ 18,000
 Bought stock for $ 15,000
 Lent $ 3,000 to Company W
 Issued $ 4,000 par stock for $ 4,500
 Paid off a $ 10,000 bond
 Paid cash dividends of $ 2,000
 Issued 100 shares, $ 50 par common stock as stock dividend.

Compute cash flows from investing and financing activities

Investing:

Sale of machine 18,000

Bought stock (15,000)
Lent money (3000)

Financing:

Bought treasury stock (9,000)

Issued stock 4,500
Paid off bond (10,000)
Paid dividends (2,000)

Stock dividend is a non cash transaction