Question

Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $202,100. Depreciation recorded on equipment and a building amounted to $60,400 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	$51,330		$54,410
Accounts receivable (net)	65,090		67,140
Inventories	128,330		115,680
Prepaid expenses	7,130		7,670
Accounts payable (merchandise creditors)	57,340		60,720
Salaries payable	8,260		7,560

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Statement of Cash Flows (partial)
Cash flows from operating activities:
	$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities		$

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

Answer 1

statement of cash flows (partial):

cash flow from operating activities:
net income	$202,100
add: depreciation	60,400
	$262,500
adjustments for changes in working capital
adjustments to reconcile net income to net cashflow from operating activities:
changes in current operating assets and liabilities:
Reduction in accounts receivable (net)	2,050
increase in inventories (128,330 - 115,680)	-12,650
decrease in prepaid expenses	540
decrease in accounts payable (merchandise creditors)	-3,380
increase in salaries payable	700
net cash flow from operating activities	$249,760

b.Yes.

Even if direct method was used , the net cash flow from operating activties would have been the same.