- March 19, 2022 at 1:37 am #651512HinthuMember
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Example 2 ( lecture on statement of cash flows part C-Financial accounting)
Profit or loss for the year ended 31 December.
Cost of sales $ (840000)
Gross profit $360,000
Distribution and administrative expenses $(120,000)
Net profit before tax. $240,000
Extracts from SOFP
Inventory 160,000. 140,000
Trade recibables 259,000. 235,000
Trade payables. 168,000. 138,000
Following information are given,
1-Expenses include depreciation of 36,000, is irrecoverable debts written off of 14,000 and employment costs of 42000
2-during the year disposed of non-current asset for 24,000 which had a book value of 18,000, the profit on which had been netted off expensed
How the cash generated from operations would be presented on statement of cash flows using the direct method?
Why is irrecoverable debt written-off of 14,000 subtracted when calculating other expenses?March 19, 2022 at 11:34 am #651520John MoffatKeymaster
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Because the debt written off means that cash is not received. So it affected the cash received from customers (and we do not want to remove it twice by including it in other expenses as well).
(There is no need to copy out examples in our lecture notes, because I obviously have copies of our notes 🙂 🙂 )
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