Chapter 12, Problem 11Q

To determine

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: 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 explain: The necessity to convert accrual basis net income to cash basis net income when preparing statement of cash flows.