Foundation in Accounting

This article discusses the cash flow statement, direct and indirect method, and provides an example of Exclusive Ltd.'s cash flow statement. It is a part of the Foundation in Accounting course and is useful for students seeking solved assignments, essays, and dissertations.

Running head: FOUNDATION IN ACCOUNTING
Foundation in Accounting
Name of the Student:
Name of the University:
Author’s Note:

1
FOUNDATION IN ACCOUNTING
Table of Contents
Answer to Question 1......................................................................................................................2
Answer to Question 2......................................................................................................................2
Answer to Question 3......................................................................................................................3
Reference.........................................................................................................................................4

2
FOUNDATION IN ACCOUNTING
Answer to Question 1
A cash flow statement is part of the financial statements which are portrayed by
businesses in the annual reports of the company. The cash flow statement records all cash
inflows and outflows of a business for a particular period. The cash flow statement further shows
bifurcations between cash inflows and out flows which are from operating activities, investing
activities and financing activities (Reid & Myddelton, 2017).
The cash flow statement of the business shows the liquidity and financial position of a
business. The structure of cash flow statement considers cash flows from operating activities,
cash flow from investing activities and cash flow from financing activities. The cash flow
statement shows the cash inflows of the business and are reviewed by potential investors for
deciding whether the business is worth making investment or not.
Answer to Question 2
Direct method applies actual cash flow information which is related to operating
activities of the business. and the same does not use accrual accounting values. While in case of
indirect method, net cash flow from operating activities is considered by adjusting profit or loss
effect of non-cash items from the total profit which the business earns during the period
(Pavlović & Bogdanović, 2013). There is not much difference between the two method and the
major difference which can be identified are is related to difference in treatment of cash from
operating activities of the business.

3
FOUNDATION IN ACCOUNTING
Answer to Question 3
Particulars Amount
Cash flow from Operating Activities:
Receipts from Cash Sales $1,000,000
Collection from Accounts Receivable $760,000
Payment to Accounts Payable -$780,000
Rent Paid -$220,000
Net Cash Inflow/(Outflow) from Operating
Activities $760,000
Cash flow from Investing Activities:
Purchase of Equipment -$1,680,000
Receipt from Sale of Equipment $240,000
Net Cash Inflow/(Outflow) from Investing
Activities -$1,440,000
Cash flow from Financing Activities:
Receipts from Issuance of Shares $4,800,000
Dividends Paid -$400,000
Net Cash Inflow/(Outflow) from Financing
Activities $4,400,000
Net Increase/(Decrease) in Cash Flow $3,720,000
In the books of Exclusive Ltd.
Cash Flow Statement
for the year ended 30th June,2016

4
FOUNDATION IN ACCOUNTING
Reference
Pavlović, M., & Bogdanović, J. (2013). Cash flow statement. Škola biznisa, (3-4), 129-147.
Reid, W., & Myddelton, D. R. (2017). Cash flow statement. In The Meaning of Company
Accounts (pp. 16-16). Routledge.