Chapter 11, Problem 13RQ

To determine

Cash flow statement:

Statement of cash flows is a statement showing the source and application of cash between two balance sheet dates. It shows how the cash is sourced and used for the company’s operating, investing, and financing activities.

Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.

Indirect method of cash flow from operating activities: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities.

• Deduct increase in current assets
• Deduct decrease in current liabilities
• Add decrease in current assets
• Add the increase in current liability
• Add depreciation expense and amortization expense
• Add loss on sale of plant assets
• Less gain on sale of plant assets

To discuss: The manner in which increased and decreased accounts receivable affect net income in relation to the operating cash flows.