Statement of Cash Flows (Direct Method)
Explanation and Calculation:
1. Cash Inflow from Customers:
Revenue is $250,000. Accounts Receivable increased by $7,000 (from $30,000 to $37,000). This
means $7,000 of revenue was not collected in cash, so we subtract this from revenue.
Additionally, Deferred Revenue increased by $1,000 (from $8,000 to $9,000), meaning cash was
received for services not yet provided.
Thus, the cash inflow from customers is calculated as:
Revenue ($250,000) - Increase in Accounts Receivable ($7,000) + Increase in Deferred Revenue
($1,000) = $244,000
2. Cash Outflow for Inventory:
COGS is $105,000. Inventory decreased by $3,000 (from $25,000 to $22,000), meaning more
inventory was sold than purchased.
Accounts Payable increased by $4,000 (from $7,000 to $11,000), meaning some inventory
purchases were not yet paid.
Thus, the cash outflow for inventory is:
COGS ($105,000) + Decrease in Inventory ($3,000) - Increase in Accounts Payable ($4,000) =
$98,000
3. Cash Outflow for Rent:
Rent Expense is $20,000. Prepaid Rent increased by $2,000 (from $10,000 to $12,000), meaning
more cash was paid in advance.
Thus, the cash outflow for rent is:
Rent Expense ($20,000) + Increase in Prepaid Rent ($2,000) = $22,000
4. Cash Outflow for Other Expenses:
Other Operating Expenses are $12,000. Accrued Expenses decreased by $4,000 (from $16,000 to
$12,000), meaning the company paid off prior expenses.
Thus, the cash outflow for other expenses is:
Other Operating Expenses ($12,000) + Decrease in Accrued Expenses ($4,000) = $16,000
5. Cash Outflow for Interest:
Interest Expense is $13,000, and there are no adjustments needed. Thus, the cash outflow for
interest is:
$13,000
Cash Flow Summary:
- Cash Inflow from Customers: $244,000
- Cash Outflow for Inventory: $98,000
- Cash Outflow for Rent: $22,000
- Cash Outflow for Other Expenses: $16,000
- Cash Outflow for Interest: $13,000
Net Operating Cash Inflow: $95,000
