Direct Method
Cash Flows from Operating Activities:
Cash received from customers $672
Cash paid to suppliers (234)
The depreciation expense, patent amortization expense, and loss on sale of land are
not cash flows.
Indirect Method
Cash Flows from Operating Activities:
Net income $ 91
Adjustments for noncash effects:
Changes in operating assets and liabilities:
Decrease in accounts receivable 12
Exercise 21–23
Exercise 21–24
Direct Method
Cash Flows from Operating Activities:
Cash received from customers $1,332 a
Cash decrease from sale of cash equivalents (6)**
Exercise 21–25
Exercise 21–25 (concluded)
Calculations using summary entries:
** If a cash equivalent investment is sold for either more or less than its
acquisition cost, we have a cash flow. Suppose the cost of this investment
Depreciation expense and patent amortization are not cash flows.
Indirect Method
Cash Flows from Operating Activities:
Net income $182
Adjustments for noncash effects:
Changes in operating assets and liabilities:
Exercise 21–26
RED, INC.
Spreadsheet for the Statement of Cash Flows
Dec.31 Changes Dec. 31
2017 Debits Credits 2018
Balance Sheet
Assets:
Cash 110 (11)86 24
Accounts receivable 132 (1)46 178
Liabilities:
Accounts payable 100 (2)13 87
Shareholders’ Equity:
Income Statement
Revenues:
Exercise 21–27
Exercise 21–27 (continued)
Spreadsheet for the Statement of Cash Flows
(continued)
Dec.31 Changes Dec. 31
2017 Debits Credits 2018
Statement of Cash Flows
Operating activities:
Cash inflows:
From customers (1) 1,954
Cash outflows:
Exercise 21–27 (concluded)
RED, INC.
Statement of Cash Flows
For year ended December 31, 2018 ($ in millions)
Cash flows from operating activities:
Cash inflows:
From customers $1,954
Cash outflows:
Cash flows from investing activities:
Purchase of equipment (230)
Sale of equipment 9