Cash Flows from Operating Activities-Indirect Method The net income reported on the income statement for the current year was $154,900. Depreciation recorded on store equipment for the year amounted to $25,600. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: End of Year Beginning of Year Cash $60,720 $55,860 Accounts receivable (net) 43,540 41,280 Inventories 59,440 62,840 Prepaid expenses 6,680 5,310 Accounts payable (merchandise creditors) 56,890 52,840 Wages payable 31,090 34,520 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 outflows, cash payments, decreases in cash, or any negative adjustments.
Cash Flows from Operating Activities-Indirect Method The net income reported on the income statement for the current year was $154,900. Depreciation recorded on store equipment for the year amounted to $25,600. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: End of Year Beginning of Year Cash $60,720 $55,860 Accounts receivable (net) 43,540 41,280 Inventories 59,440 62,840 Prepaid expenses 6,680 5,310 Accounts payable (merchandise creditors) 56,890 52,840 Wages payable 31,090 34,520 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 outflows, cash payments, decreases in cash, or any negative adjustments.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Cash Flows from Operating Activities-Indirect Method
The net income reported on the income statement for the current year was $154,900. Depreciation recorded on store equipment for the year amounted to $25,600. Balances of the current asset and current
liability accounts at the beginning and end of the year are as follows:
End of Year Beginning of Year
Cash
$60,720
$55,860
Accounts receivable (net)
43,540
41,280
Inventories
59,440
62,840
Prepaid expenses
6,680
5,310
Accounts payable (merchandise creditors)
56,890
52,840
Wages payable
31,090
34,520
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 outflows, cash payments, decreases in cash, or
any negative adjustments.
Expert Solution
Step 1
Cash flow statement provided information about the cash inflows and cash outflows of the company.
Cash flow statement consists of three activities: Operating activities, investing activities and Financing activities.
Cash flow from operating activities is computed by direct method or indirect method.
Under indirect method, cash flow from operating activities is computed by adjusting the net income to non-cash expenses and changes in current assets and current liabilities.
Increase in operating current assets should be deducted from net income and decrease in operating current assets should be added to net income.
Increase in operating current liabilities should be added to the net income and decrease in operating current liabilities should be deducted from the net income.
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