Cash Flow Statement: Practical Problems and Solutions
Written by True Tamplin, BSc, CEPF®
Reviewed by subject matter experts.
Updated on April 22, 2023
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These problems will help students clarify key concepts about cash flow statements and to ready themselves for their exams and interviews.
From the summarized cash book of Zenith Ltd. shown below, calculate net cash flow from operating activities .
From the following profit and loss account of Samarth Ltd., calculate net cash flows from operating activities.
From the following information extracted from the book of Max Ltd. for the year 2019-20, calculate net cash flow from investing activities .
Additional information is given as follows:
- Depreciation charged on furniture during the year was $10,000
- Depreciation on machinery charged during the year was $25,000
- Machinery, the book value of which was $80,000, sold for $75,000
- Land was sold at a profit of $90,000
Note: $190,000 indicates cash outflows are more than inflows.
You received the following information from Hema Enterprises Pvt. Ltd. Calculate the net cash flow from investing activities.
Information relating to assets sold during the year 2020 is given as follows:
- Furniture costing $100,000 (accumulated depreciation $20,000) was sold for $70,000
- Machinery costing $100,000 (accumulated depreciation $30,000) was sold for $80,000
Note: Cash outflows are more than cash inflows ($410,000).
From the following information acquired from Tarapoore Ltd., calculate net cash flows from financing activities for the year 2019-20.
Note: Interest on debentures paid during the year was $30,000 and on bank loan $40,000.
Base Ltd. provides the following information to you. Calculate net cash flows from financing activities for the year 2019-20.
Further information is given as follows:
- The company issued 5,000 bonus shares during 2019-20 to shareholders at face value
- Interest on debentures paid, in total, during the year was $60,000
- Interest on bank loan paid during the year was $25,000
- Dividends paid during the year amounted to $120,000
You can also check:
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Cash Flow Statement: Practical Problems and Solutions FAQs
What is a cash flow statement.
The Cash Flow statement is an integral part of the Financial Statements. It shows the amount and timing of money in and outflows, i.E., Cash received and paid to suppliers, employees, investors, etc. It also shows changes in the balance sheet (other than equity). The Cash Flow statement reports how much cash was generated or used by the firm, not how much profit was made.
What are the three types of Cash Flows?
There are three Cash Flow types that companies should track and analyze to determine the liquidity and solvency of the business: Cash Flow from operating activities, Cash Flow from investing activities, and Cash Flow from financing activities.
What is the purpose of the Cash Flow statement?
The Cash Flow statement tells you how your company got its cash balance at the beginning of the period compared to the end.
What are the two ways to prepare Cash Flow statements?
There are two ways to prepare a Cash Flow statement: the direct method and the indirect method.
What is the most important part of the Cash Flow statement?
The most important part of a Cash Flow statement is net incom, because it shows how much money a company earned during a given period.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website , view his author profile on Amazon , or check out his speaker profile on the CFA Institute website .
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BUS103: Introduction to Financial Accounting
Practice Problems: Statement of Cash Flows
The following comparative balance sheets are for Dells Corporation as of 2010 June 30, and 2009 June 30. Also provided is the statement of income and retained earnings for the year ended 2010 June 30, with additional data.
Equipment with a cost of USD 20,000, on which USD 10,000 of depreciation had been recorded, was sold for USD 3,000 cash. Additional equipment was purchased for USD 220,000.
Stock was issued for USD 250,000 cash.
The USD 50,000 bank note was paid. Using the data given for Dells Corporation:
a. Prepare a statement of cash flows - indirect method.
b. Prepare a working paper to convert net income from an accrual basis to a cash basis. Then prepare a partial statement of cash flows - direct method, showing only the cash flows from operating activities section.
Home » Exercises » Statement of cash flows
Statement of cash flows
- Chapter Name: Statement of cash flows
- Section: Exercises
- Number of Exercises: 13
- Solutions: Available for all 13 exercises
We have provided the solutions of all the exercises in the statement of cash flows chapter. However, It is always in your best interest that you try enough to solve each exercise yourself before seeing the solution.
If you face difficulty in solving these exercises or understanding the solutions, please go to the explanations section of our website and read full explanation of the statement of cash flows chapter.
Exercise-1 (Operating, investing and financing activities and their effect)
Exercise-2 (Net cash provided/used by investing activities)
Exercise-3 (Net cash provided/used by financing activities)
Exercise-4 (Cash paid to suppliers – formula approach)
Exercise-5 (Cash paid to suppliers – t accounts approach)
Exercise-6 (Cash received from customers – formula approach)
Exercise-7 (Cash received from customers – t accounts approach)
Exercise 8 (Net cash provided/used by operating activities – indirect method )
Exercise-9 (Effect of transactions on statement of cash flows – indirect method)
Exercise-10 (Computation of net cash flows from operating activities – indirect method)
Exercise-11 (Computation of cash paid for property, plant and equipment)
Exercise-12 (Computation of cash paid for dividends)
Exercise-13 (Preparation of statement of cash flows – Indirect method)
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Unit - 3 MODULE - 5 Cash Flow Statement Practical Problems (With Solutions
The Cornell Hotel and Restaurant Administration Quarterly
Finding appropriate ways to use cash flows to achieve financial diagnosis is one of the hardest tasks for financial analysts. Literature stressed the advantages for financial diagnosis users, when using flow information, without offering as many practical ways to achieve it. In a market economy, the enterprise should be regarded as a system that runs through its relations with third parties (investors, creditors, budgeting, suppliers, etc...) relationships which materialize through estate flows. According as these flows take liquidity shape are interested both third parties (for reclaiming of amounts invested and gaining benefits or claiming of some claims), as well as the management unit, for only thus can the system work.
Nusantara Science and Technology Proceedings
Semenova S. Cash flow optimization and accounting in the enterprise. Social and Legal Sciences Vol. 1 No. 2 – November 2018. – P.57-69. ISNN 2544-6770
Foreign practice of financial management is increasingly drawn to the characteristics of cash flows in the assessment of the enterprise. The net cash flow is the objective result of the management, while the profit depends on the subjective approach of the adopted accounting policy. The financial situation of many enterprises in Ukraine is unsatisfactory. One of the ways to improve it is to optimize cash flows through balance and coherence between their individual types, to achieve a growth in net cash flow, which will increase solvency, financial sustainability and opportunities for self-financing of enterprises. According to the existing approach, cash flow optimization is viewed from the point of view of their time synchronization and balance in volume, before which cash flow equalization, maximization of net cash flow or provision of its target value. It is proved that most models of optimization of the balance of monetary assets are based on the definition of the minimum limit, but do not take into account the actual level of solvency of the enterprise, the objective lack of funds and circumstances associated with it. Moreover, the net cash flow is directly affected by the cash balances, rather than separately the amount of proceeds or expenditures. Therefore, optimization of cash flows should be based on interrelated criteria. A model of cash flow optimization is proposed that combines a static approach to the formation of the optimum balance of monetary assets and a dynamic approach to cash flow management. The necessity of optimization of cash flows of the enterprise is proved on the basis of interrelated criteria: 1) formation of the optimal balance of monetary assets; 2) achievement of the target value of the net cash flow; 3) balance of cash flows by type of activity; 4) maximizing net cash flow from operating activities. The proposed model allows to accumulate the necessary amount of monetary assets during periods of high business activity and direct them in such a way that in the period of the shortage of funds, planned and necessary payments are made. Formation of the insurance balance of monetary assets would allow, on terms of self-financing, cover the period of shortage of funds and obtain additional income from the temporary placement of insurance and compensatory funds on the deposit account. Under such conditions an enterprise can avoid the costs of paying fines and penalties, and plan their calculations. Implementation of the proposed approach allows to improve the efficiency of cash flows from operating activities. It is proved that in determining the optimal balance of funds, it is necessary to reconcile data on the nature and volume of income and expenditure of funds, the balance of funds at the beginning and end of the period, the level of solvency of the enterprise. It is taken into account that the balance of funds is shown in the amount of availability at the reporting date, and cash flow - for the period (year, quarter, month, day), the net cash flow directly affects the balance of cash assets. The target criterion for optimizing cash flows is the maximization of the net cash flow from operating activities to ensure the development of the enterprise on the basis of self-financing. The achievement of the optimum balance of monetary assets is ensured by obtaining the target growth of net cash flow, which should be formed predominantly at the expense of operating activity. In order to maximize net cash flow from operating activities, the necessity to allocate its components for the input and output cash flows by types of activity and main directions of income and expenditure of funds is substantiated. In accordance with this, a form of cash flow statement is drawn up on the example of water transport enterprises, which meets the information needs of optimizing cash flows.
Borlea Nicolae Sorin
In the present the authors show the modalities of analysis the cash – flow statement, based on an specific indicators system.
CERN European Organization for Nuclear Research - Zenodo
2K20-IT-128 Samridhi Kapoor
The main goal of the accounting department in the company is to prepare the reliable financial statements in order to make their valid balance sheets, income statements and cash flow statements. This paper attempts to analyze the financial statements and measure the performance in terms of assets utilization and profitability. In detail the research methodology used is exploratory research for the study that has focused on the past and present performance of Heavy Electrical Equipment Plant (HEEP), Ranipur (Haridwar). The study purely relies on secondary data, which were collected for a period of seven years (2007-2013) from the audited annual reports of the company and the data provided for the purpose of effective periodical analysis. To achieve the research goal five categories of the financial ratios were utilized for testing the study’s hypothesis. Profitability ratios, leverage ratios, Profit margin ratios, Return on Investment, Return on equity. This study reveals that financ...
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Cash Flow Statement: Problems and Solutions | Accounting
Here is a compilation of top three accounting problems on cash flow statement with its relevant solutions.
From the following summary of Cash Account of X Ltd., prepare Cash Flow Statement for the year ended 31st March 2007 in accordance with AS-3 using the direct method. The company does not have any cash equivalents.