Homework answers / question archive / How will you apply irs payrolls tax forms,accrual basis of accounting, to your life/job in the future? How will this apply to your future school work? How will this apply to your future career?   Question 1: to prepare statement of cash flow using direct method

How will you apply irs payrolls tax forms,accrual basis of accounting, to your life/job in the future? How will this apply to your future school work? How will this apply to your future career?   Question 1: to prepare statement of cash flow using direct method

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How will you apply irs payrolls tax forms,accrual basis of accounting, to your life/job in the future?

How will this apply to your future school work? How will this apply to your future career?

Question 1: to prepare statement of cash flow
using direct method.
Direct method generates the operating cash flow in a different format from the indirect that we
discussed. Indirect method is a much more popular and common way of preparing statement of cash
flow. The difference is, using indirect we reconcile net income to operating cash flow. Using direct, we
directly indicate where the operating cash is from, then add them up.
In question 1 (direct method), you need follow the following steps to find the cash from operating
activities:
Cash Receipts from customers
Less: cash payments
= Cash provided by Operating Activities
Under “cash payments”, there are the following subcategories:
To suppliers
For income taxes
For operating expenses
For interest
You may find the information from the balance sheet and income statement. For instance:
Cash receipts from customers = Sales – Increase in AR
Cash payments to suppliers = COGS + Increase in Inventory – Increase in AP
Note that COGS + Increase in Inventory = Total cost of purchase, then subtract increase in AP, which
is the noncash purchase
Cash payments for operating expense = Total Operating Expense (exclusive of depreciation) + Ending
Prepaid Expenses – Beginning Prepaid Expenses + Beginning Accrued Expenses – Ending Accrued
Expenses.
In another word, cash payments for operating expense = Operating Expense + Increase (- Decrease)
of Prepaid + Increase (- Decrease) of Accrued Expense.
This is because, when prepaid increased, that means more cash paid for operating purpose (DR.
Prepaid Expense CR. Cash). When accrued payable decreased, that means more cash paid to satisfy the
short-term operating liabilities (DR. Accrued Payable CR. Cash)
The investing activities and financing activities are the same as indirect method. Condensed financial data of Harley Corp. Follow. Question 2: to prepare statement of cash flow
using indirect method.
A tip: gain from sales of investments need to be deducted from “Net Cash Provided by Operating
Activities” to avoid double counting that amount, since this is included in the net income, and you will
have to include this gain in the investing activities.