Example – Direct method of cash flow statement

In this post, we’ll prepare a statement of cash flows using direct method. So, let’s get started!.

Question

Following are the extracts of financial statements ABC Company for the year ended 31 December 2020. You are required to prepare the statement of cash flows using direct method.

Additional information: The accountant of ABC Company has provided following additional information for your consideration.

  • All sales were made on credit.
  • Depreciation expense for the year is $6,000. This expense is charged to cost of revenue and operating expenses in the ratio of 75:25.
  • ABC Company maintains a provision for doubtful receivables at 5%. During the year, trade receivables of $1,500 million were written off.
  • Other income represents gain on disposal of fixed assets whose net book value at the time of disposal was $7,250.

Answer

Please see the workings as well which are given after the statement of cash flows.