Page 91 - Ebook Financial Accounting 3
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Direct method from operating activities
The direct method identifies cash inflows by sources of operating cash and cash
outflows by uses. The difference between total cash inflows and total cash outflows is the net
cash flow from operating activities. Hence cash flows can be listed as follows:
Cash inflows
a. Cash received from sales which include cash sales and cash received from
debtor
Cash received from trade debtor
= Opening trade debtor + Credit sales – Closing trade debtors
b. Other income received such as rent received, investment income received etc.
Revenue/Income Account
RM RM
Bal b/d (accrual) xx Bal b/d (prepaid) xx
SOCI xx Cash xx
Bal c/d (prepaid) xx Bal c/d (accrual) xx
xx xx
Cash outflows
a. Cash paid for purchases which include cash purchases and cash paid to
suppliers.
Cash received from trade creditors
= Opening trade creditors + Credit purchases – Closing trade creditors
b. Cash paid for operating expenses such as salaries and wages, rent and rates
etc.
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