Question

Cash Flows from operating activities -indirect method

The net income reported on the income statement for the current year was 185000 depreciation recorded on equipment and a building amounted to 96000 for the year. Balances of the current asset and current liability account at the beginning and end of the year are as follows:

End of Year Beginning of Year

Cash 75,900 86150

Accts receivable 84550 90000

Inventories 186200 175000

prepaid expenses 3600 4500

Accounts Payable 91500 110000

Salaries Payable 7200 4000

A. Prepare the cash flows from operating activities section of the statement of cash flows, using the indirect method

B. If the direct method had been used, would the net cash flow from operating activities have been the same? Explain.

Answer 1

a)

Cash flow from operating activities
Net income		185000
Adjustment to reconcile net income to net Cash flow from operating activities
Depreciation expense	96000
Decrease account receivable	5450
Increase inventories	-11200
Decrease prepaid expense	900
Decrease account payable	-18500
Increase salaries payable	3200
		75850
Net Cash flow from operating activities		260850

b) If the direct method had been used, net Cash flow from operating activities would have been the same