Question

The accounting records of Unlucky Company provided the data below.

Net loss	$40,000
Depreciation expense	12,000
Increase in salaries payable	11,000
Increase in accounts receivable	4,000
Decrease in inventory	4,800
Amortization of patent	700
Decrease in premium on bonds	500

Required:

1. Prepare a reconciliation of net loss to net cash flows from operating activities. (Cash flows from operating activities using the indirect method).

Answer 1

Following is the reconciliation of net loss to net cash flows from operating activities -

Particulars	Amount ($)
Net Loss	(40,000)
Adjustments for non-cash effects -
Depreciation expense	12,000
Increase in salaries payable	11,000
Increase in accounts receivable	(4,000)
Decrease in inventory	4,800
Amortization of Patent	700
Decrease in premium on bonds	(500)
Net cash flows from Operating activities	(16,000)