Cash Flows from Operating Activities—Indirect Method The income statement disclosed the following items for the year: Depreciation expense $53,700 Gain on disposal of equipment 31,310 Net income 391,700 The changes in the current asset and liability accounts for the year are as follows: Increase (Decrease) Accounts receivable $8,360 Inventory (4,760) Prepaid insurance (1,780) Accounts payable (5,670) Income taxes payable 1,780 Dividends payable 1,250
The income statement disclosed the following items for the year:
| $53,700 | |
| Gain on disposal of equipment | 31,310 |
| Net income | 391,700 |
The changes in the current asset and liability accounts for the year are as follows:
| Increase (Decrease) |
||
|---|---|---|
| $8,360 | ||
| Inventory | (4,760) | |
| Prepaid insurance | (1,780) | |
| Accounts payable | (5,670) | |
| Income taxes payable | 1,780 | |
| Dividends payable | 1,250 |
a. Prepare the “Cash flows from operating activities” section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.
| Statement of Cash Flows (partial) |
| Cash flows from operating activities: |
| Net income |
| Adjustments to reconcile net income to net cash flow from operating activities: |
| Depreciation |
| Gain on disposal of equipment |
| Changes in current operating assets and liabilities: |
| Increase in accounts receivable |
| Decrease in inventory |
| Decrease in prepaid insurance |
| Decrease in accounts payable |
| Increase in income taxes payable |
| Net cash flow from operating activities |
The cash flow statement is an essential part of the financial statements of the organization. It is helpful for the stakeholders that they can identify the organization's financial situation as the firm have sufficient amount of cash to meet out their obligation. It can be repaired using direct and indirect methods.
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