13. Chew Corporation prepares its statement of cash flows using the indirect method of reporting operating activities. Net income for the 2021 fiscal year was $1,262,000. Depreciation expense of $152,000 was included with operating expenses in the income statement. The following information describes the changes in current assets and liabilities other than cash: Increase in accounts receivable $ 164,000 Decrease in inventory 120,000 Decrease in prepaid expenses 74,000 Decrease in salaries payable 42,000 Increase in income taxes payable 56,000 Required: Prepare the cash flows from operating activities for 2021. (Amounts to be deducted should be indicated with a minus sign.)
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
13. Chew Corporation prepares its statement of
| Increase in |
$ | 164,000 |
| Decrease in inventory | 120,000 | |
| Decrease in prepaid expenses | 74,000 | |
| Decrease in salaries payable | 42,000 | |
| Increase in income taxes payable | 56,000 | |
Required:
Prepare the cash flows from operating activities for 2021. (Amounts to be deducted should be indicated with a minus sign.)
Solution:
Statement cash flows represents Cash generated or used from operating, investing and financing activities separately.
It helps business in assessing cash flow pattern and helps in decision making.
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