Question

he net income reported on the income statement for the current year was $346,400. Depreciation recorded on equipment and a building amounted to $99,330 for the year. 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	$90,570	$96,530
Accounts receivable (net)	111,490	119,020
Inventories	222,910	208,840
Prepaid expenses	13,500	14,540
Accounts payable (merchandise creditors)	96,260	103,590
Salaries payable	15,150	12,980

Required:

A.	Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.
B.	If the direct method had been used, would the net cash flow from operating activities have been the same?

Answer 1

A. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.

Cash flow from operating activities
Net income		346400
Adjustment to reconcile net income to net cash flow from operating activities
Depreciation expense	99330
Decrease account receivable	7530
Increase inventories	-14070
Decrease prepaid expense	1040
Decrease account payable	-7330
Increase salaries payable	2170
		88670
Net cash flow from operating activities		435070

2) Yes, If the direct method had been used, the net cash flow from operating activities would have been the same.