Question

The income statement and selected balance sheet information for Direct Products Company for the year ended...

The income statement and selected balance sheet information for Direct Products Company for the year ended December 31 are presented below.
Income Statement
  Sales Revenue $ 45,600
  Expenses:
       Cost of Goods Sold 19,500
       Depreciation Expense 1,700
       Salaries and Wages Expense 8,700
       Rent Expense 4,200
       Insurance Expense 1,750
       Interest Expense 1,650
       Utilities Expense 1,250
  Net Income $ 6,850
Selected Balance Sheet Accounts
Ending Balances Beginning Balances
  Accounts Receivable $ 575     $ 610    
  Inventory 860     705    
  Accounts Payable 435     490    
  Prepaid Rent 31     23    
  Prepaid Insurance 28     34    
  Salaries and Wages Payable 74     47    
  Utilities Payable 26     18    
Required:

Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)
Business   Accounting   
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Answer #1

Solution:

Direct Products Company
Statement of Cash Flows (Partial)
For the year Ended December 31
Particulars Details Amount
Cash Flow from Operating Activities:
Net Income $6,850.00
Adjustments to reconcile net income to net cash provided by operations:
Depreciation Expense $1,700.00
Decrease in accounts receivables ($610 - $575) $35.00
Increase in inventory ($860 - $705) -$155.00
Increase in prepaid rent ($31 - $23) -$8.00
Decrease in Prepaid Insurance ($34 - $28) $6.00
Decrease in accounts payable ($490 - $435) -$55.00
Increase in salaries and wages payable ($74 - $47) $27.00
Increase in utilities payable ($26 - $18) $8.00 $1,558.00
Net Cash provided by operating activities $8,408.00
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