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# Cash flow statement-direct & indirect method

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Prepare statement of cash flows (indirect method) using balance sheet data. Presented
below are comparative balance sheets for Millco, Inc., at January 31 and February
28, 2004.

Then write a 350-500 word paper discussing the difference sections of the statement of cash flows assist different sets of users. Also discuss the merits of using the direct method vs the indirect methods of preparation.

#### Solution Preview

Dear student,
Statement of cash flow shows the movement of cash from operating, investing and financing activities of the company. It shows the short term solvency of the company. It shows the company's flow of cash both inflow of cash and cash equivalents and outflow of cash and cash equivalents.

Cash flow statement shows the ability of the firm to be solvent in the short term. Cash flow statement helps the entrepreneur to monitor the payment policies and make him to be diligent in the collections from the debtors to make the firm more financially stable. cash flow statement shows actual amount of cash received and cash paid and the actual balance of cash at the end of the financial year. Therefore, cash flow statement ...

#### Solution Summary

The solution contains1. preparation of cash flow statement under indirect method 2. a write-up explaining different sections of cash flow statement and the users of each section of cash flow statement and 3.merits of preparing cash flow statement under direct method and indirect method.

\$2.19

## Prepare a statement of cash flow: indirect method and direct method for Turner, Inc

P12-9C Condensed financial data of Turner Inc. follow.

4 chapter 12 Statement of Cash Flows

TURNER INC.
Comparative Balance Sheets
December 31
Assets 2010 2009
Cash \$ 37,000 \$ 33,000
Accounts receivable 57,000 41,000
Inventories 45,000 48,000
Prepaid expenses 17,000 14,000
Investments 162,000 130,000
Plant assets 580,000 520,000
Accumulated depreciation (211,000) (180,000)
Total \$687,000 \$606,000
Liabilities and Stockholders' Equity
Accounts payable \$ 44,000 \$ 51,000
Accrued expenses payable 21,000 15,000
Bonds payable 180,000 220,000
Common stock 175,000 150,000
Retained earnings 267,000 170,000
Total \$687,000 \$606,000

Prepare a statement of cash
flows-indirect method.
(SO 4)

TURNER INC.
Income Statement Data
For the Year Ended December 31, 2010
Sales \$610,000
Less:
Cost of goods sold \$290,000
Operating expenses, excluding
depreciation 65,000
Depreciation expense 50,000
Income taxes 47,000
Interest expense 12,000
Loss on sale of plant assets 9,000 473,000
Net income \$137,000

1. New plant assets costing \$90,000 were purchased for cash during the year.
2. Old plant assets having an original cost of \$30,000 were sold for \$2,000 cash.
3. Bonds matured and were paid off at face value for cash.
4. A cash dividend of \$40,000 was declared and paid during the year.
Instructions

Prepare a statement of cash flows using the indirect method.
*P12-10C Data for Turner Inc. are presented in P12-9C. Further analysis reveals that
accounts payable pertain to merchandise creditors.

Instructions
Prepare a statement of cash flows for Turner Inc. using the direct method.

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