Suppose your company sells services of $310 in exchange for $200 cash and $110 on account. Depreciation of $130 relating to equipment also is recorded.Calculate the amount that should be reported as net cash flow from operating activities.Calculate the amount that should be reported as net income.Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).

Cash flow from operating activities includes all the cash receipts and cash payments which are received or paid by the entity for its core operations.1) Calculation of net cash flow from operating activities :- Cash received from service = $200 2) Calculation of net income :- Service revenue (both cash and credit) - Depreciation = $310 - $130 = $180 3) Net Cash flow from operating activities using indirect method :- Statement of cash flows (extract) cash flow from operating activities Amount Net income $180 Adjustment to reconcile the net income Add : Depreciation $130 Less : increase in current assets (Accounts receivable) -$110 Net cash flow from operating activities $200

Answered: Suppose your company sells services of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose your company sells services of $310 in exchange for $200 cash and $110 on account. Depreciation of $130 relating to equipment also is recorded.

Calculate the amount that should be reported as net cash flow from operating activities.
Calculate the amount that should be reported as net income.
Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).

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