Classify: Indicate whether each of the following items would be associated with

Question

Classify: Indicate whether each of the following items would be associated with a cash inflow (I), cash outflow (O), or noncash item (N) and under which category each would be reported on a statement of cash flows: Operating Activities (OA), Investing Activities (IA), Financing Activities (FA), or not on the statement (NOS). 2. Determine cash receipts and'or payments involved with the data presented Cash receipts related to sales were S245.000. I figured this out by making a t-account of accounts receivable and solving for the cash collected.

Explanation / Answer

2.b. Cash payments for income taxes. This represents amounts paid by the company for income taxes. The amount is calculated by taking income tax expense and increasing it by the amount of any decrease in the balance of the income taxes payable account or decreasing it by the amount of any increase in the balance of the income taxes payable account.

In this case, there are no accrued taxes so the income tax expense is the same as cash paid for income taxes.

This can be shown with the equation. i.e,

Cash paid for Income Taxes = Income Tax expenses + if decrease in Income Tax payable or - if Increase in Income Tax payable

= 42,000 +decrease 1,000 = $43,000 is the cash paid for Income Taxes.
(here, this 1,000 came from opening balance 18,000 - closing balance 17,000).

2.c. Cash payments to suppliers. This represents the amount paid by the company for merchandise it plans to sell to its customers. It takes a twostep calculation to determine the cash payments to suppliers.

step - 1:

First, the increase in the inventory account is added to the amount of cost of goods sold—found on the income statement = $2,000 + 109,000 then we get $111,000 as the cost of goods purchased.
(here, this 2,000 came from opening balance 34,000 - closing balance 36,000).

An increase in inventory means a company purchased more than it sold. Because the amount paid for merchandise includes what was sold as well as what still remains on hand in inventory to be sold, the change in inventory effects the cash payments to suppliers.
To determine the amount that has actually been paid for the merchandise purchased, a second step is needed.

Step-2: The Increase in accounts payable of $3,000 is then subtracted to the amount of the purchases of $111,000 to calculate the cash paid to suppliers of $108,000.

Therefore, Cash paid to suppliers = $108,000

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