## T-Account Method — Deriving Cash Receipts and Payments
When a problem provides total sales/purchases (or opening/closing balances of debtors/creditors) without directly stating cash amounts, construct T-accounts to derive the missing cash figures.
### Step 1 — Split Sales and Purchases Between Cash and Credit
```
Credit Sales = Total Sales − Cash Sales
Credit Purchases = Total Purchases − Cash Purchases
```
If only the total is given and the split is unknown, treat the entire amount as going through the respective T-account.
### Step 2 — Trade Receivables (Debtors) T-Account
```
Trade Receivables A/c
Dr Cr
────────────────────────────────────────
Opening Balance X │ Cash Received ? ← balancing figure
Credit Sales (P&L) X │ Closing Balance X
────────────────────────────────────────
Total = Total
```
Formula:
$$\text{Cash Received from Debtors} = \text{Opening TR} + \text{Credit Sales} - \text{Closing TR}$$
### Step 3 — Trade Payables (Creditors) T-Account
```
Trade Payables A/c
Dr Cr
────────────────────────────────────────
Cash Paid ? │ Opening Balance X ← balancing figure
Closing Balance X │ Credit Purchases X
────────────────────────────────────────
Total = Total
```
Formula:
$$\text{Cash Paid to Creditors} = \text{Opening TP} + \text{Credit Purchases} - \text{Closing TP}$$
### Step 4 — Total Cash Flows for the Statement
```
Total Cash Received = Cash Sales + Cash from Debtors T-account
Total Cash Paid = Cash Purchases + Cash to Creditors T-account
```
### Additional Special Working Notes
Loans (to distinguish new borrowings from repayments):
```
Loan A/c
Dr Cr
Repayment (cash) X │ Opening Balance X
Closing Balance X │ New Loan Raised X ← balancing
```
PPE purchased partly by exchange of old asset:
Only the cash portion paid is a cash outflow in Section B. The book value of the asset given in exchange is non-cash and must be excluded.
Debentures redeemed at premium:
Cash paid = Face Value + Redemption Premium (both are cash outflows in Section C).