Problem 14-14A (Algo) The direct versus the indirect method of determining cash flow from operating activities LO 14-1, 14-2 Thornton Brands, Inc., presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from Thornton's Year 2 and Year 1 year-end balance sheets: Account Title Accounts receivable Merchandise Year 2 Year 1 $22,800 $26,300 59,200 48,900 16,000 27,500 inventory Prepaid insurance Accounts payable 25,400 Salaries payable 4,800 Unearned service 950 revenue The Year 2 income statement is shown below: Income Statement Sales Cost of goods sold Gross margin Service revenue Insurance expense Salaries expense Depreciation expense Operating income Gain on sale of equipment Net income Required Required A B 16, 200 3,850 2,750 $ 604,000 (382,000) 222,000 4,800 (39,000) (158,000) (5,900) 23,900 3,100 $ 27,000 Required a. Prepare the operating activities section of the statement of cash flows using the direct method. b. Prepare the operating activities section of the statement of cash flows using the indirect method. Complete this question by entering your answers in the tabs below. Prepare the operating activities section of the statement of cash flows using the direct method. (Cash outflows should be indicated with minus sign.) THORNTON BRANDS, INC. Statement of Cash Flows (Operating Activities) For the Year Ended December 31, Year 2 Cash flows from operating activities: Cash collections from customers for sales Cash collections from customers for services Cash payments for: Net cash flow from operating activities $ 0
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.
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