Explanation Operating Activities Section: The activities which accounts for daily operating transactions results in cash inflows as well as outflows are referred to as the operating activities section. The cash flows in the operating activities exists mainly from the production and distribution of commodities produced in an economy. The cash flow statement as per the direct method is given below: L.L. Company Cash Flow Statement (Partial)– Indirect Method For the year ended December 31 Operating Activities Net Income (Given) $2,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Expense (Given) $6,000 Changes in operating working capital accounts: Increase in Accounts Receivable ($2,500) Increase in Inventory ($2,200) Decrease in Accounts Payable ($1,200) Increase in Accrued Expenses 150 Decrease in Taxes Payable ($950) Net cash provided by operating activities $1,300 Table (1) The table given above depicts various components that help to evaluate the total value of net cash by all the operating activity that is calculated as $1,300. Working Note: The calculation for increase in Accounts Receivable is given below: Increase in Accounts Receivable = ( Ending balance − Opening Balance) = $ 5 , 500 − $ 3000 = $ 2 , 500 The calculation for increase in inventory is given below: Increase in Inventory = ( Ending

1st Edition

ISBN: 9780132162302

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Chapter 22, Problem 22.6BE

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To prepare: The operating activities section of the cash flow statement using the indirect method.

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Intermediate Accounting

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The operating activities section of the cash flow statement using the indirect method.

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