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  • 1.  Cash flow statement

    Posted 11-17-2020 12:57 AM
    Hi Can anyone explain to me why is the dividend declared and paid in 2017 included in the cash flow (financing) activities for the below question. The question and answer are copied below. Please also explain why does decrease in accounts payable added to COGS and why does decrease in Inventories deducted from COGS for direct cash flow computation. Similarly for operating expenses. increase in opex is added. The question and answer from Wiley book are copied below. Please clarify. 
    Thanks and regards
    Daliya 

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  • 2.  RE: Cash flow statement

    Posted 11-28-2020 12:39 PM
    hii i am encountering similar issues with cashflow statement practice study maybe we can catch up and dicuss about the who cash flow thing . please feel free to test me back at my email id  (pprbiotechresearch888@...)

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    Prerna Maurya
    Student
    Bhiwadi
    India
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    Original Message


  • 3.  RE: Cash flow statement

    Posted 11-29-2020 01:40 AM
    Hi,

    The question is based on the Income statement which is actually Accrual Based.  For the purpose of CFS, we need to arrive at what was paid or received. Hence the reduction in a liability would mean it was paid off and it would be added to the expense for the period. Opposite is the case for assets if there is reduction in inventory it means organization could use it asset and did not spend cash for that in the relevant period. Hence it would be reduced from the cost of goods sold for arriving at how much cash was used to arrive at cost of sales.

    Dividend paid is a financing activity as it is related to the funds that organization is avaliing from Shareholders, but if it was dividen recd from the investments the org is holding then it would be considered part of the operaing activities.

    Hope it helps.

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    HARJJEET GAHLA
    Accountant
    Calgary AB
    Canada
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    Original Message


  • 4.  RE: Cash flow statement

    Posted 11-29-2020 11:01 AM
    Thanks HARJJEET GAHLA.

    I understood it clearly now.

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    Daliya Babu
    Qatar
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    Original Message


  • 5.  RE: Cash flow statement

    Posted 11-29-2020 11:12 AM
    Hi

    The answer is also attached along with the question.  Please refer the below response from Harjjeet. 
    regards
    Daliya

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    Daliya Babu
    Qatar
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    Original Message


  • 6.  RE: Cash flow statement

    Posted 11-29-2020 11:50 AM
    Best way to answer your first question, operating activities appear on the income statement..  A dividend declared and paid is a movement of balance sheet accounts.  And because payouts of stocks are used as a component of financing the company (because you seel stock to get money, then you provide a return to investors in the form of dividends)

    The second set of questions, its a lot harder to explain because it involves accrual basis to cash basis and that could take a few paragraphs.

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    George Ofslager
    Analyst
    Rock Island IL
    United States
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    Original Message