Under direct method of cash flow statement when we calculate Cash receipts from customers we add opening debtors and less closing debtors from the sales revenue. But, when we calculate Cash paid to suppliers and employees we add closing inventory and add opeing inventory. I am confused where to add and deduct opeining and closing balances. Please clear my doubt.
3 Replies
Arun Kanunga
(Sirs)
(117 Points)
Replied 07 June 2010
In payment to creditor, first of all we have to find out the amount of purchase so we provide effect of inventory and then adjusted with their opening and closing balance. While sale are directly linked with so no need to adjust inventory
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janak
(post graduation)
(1327 Points)
Replied 11 June 2010
procedure of adding or deducting opening and closing balances of respected a/c respectively only for computing the collection of cash or payments to creditors.....
(say) opening balances of debtor amounted to Rs.50,000 ,closing balance is 90,000 & sales to such person is rs.1,50,000 during current year.......ok
opening balance+current year cresdit sale =total debtor during year &
if we reduce closing debtor(i.e. debtors left with firm at the end of year)...........it means we have got some amt from them due to which debtor has reduced to Rs.90,000 (i.e. we have colllected cash rs. 1,10,000 from our debtor)
for compute payment to creditors & employees ......
we do so as we have done above......
i hope ......u get it
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