Question

The next part of this alternative is to show the impact of changes in balance sheet...

The next part of this alternative is to show the impact of changes in balance sheet accounts (typically current assets and liabilities) as they affect Net Income “accrual based” to Net Cash Flow. Just as when Accounts Receivables balance sheet balances will increase from one year to the next if the cash collected during the year is LESS THAN revenue, the increase will be “subtracted” from Net Income to arrive and Net Cash Flows. Below is a list of accounts from a comparative balance sheet. For each, calculate the “change” from year 1 to year 2 and then indicate whether this change needs to be “added” or “subtracted” on the statement of cash flows.

Account

Year 2

Year 1

Change (calculate)

“added” (+) or “subtracted” (-)

Accounts Receivable

$40,000

$32,000

Unearned Revenue

110,000

70,000

added

Prepaid Insurance

52,000

45,000

Prepaid rent

7,000

4,000

Payroll tax payable

75,000

63,000

Inventory

145,000

122,000

subtracted

Accounts payable

220,000

240,000

20,000

Prepaid taxes

8,400

6,500

Utilities payable

38,000

41,000
Business   Accounting   
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Answer #1
Account Year 2 Year 1 Change (calculate) “added” (+) or “subtracted” (-)
Accounts Receivable $40,000.00 $32,000.00 $8,000.00 Subtracted
Unearned Revenue $110,000.00 $70,000.00 $40,000.00 Added
Prepaid Insurance $52,000.00 $45,000.00 $7,000.00 Subtracted
Prepaid rent $7,000.00 $4,000.00 $3,000.00 Subtracted
Payroll tax payable $75,000.00 $63,000.00 $12,000.00 Added
Inventory $145,000.00 $122,000.00 $23,000.00 Subtracted
Accounts payable $220,000.00 $240,000.00 -$20,000.00 Subtracted
Prepaid taxes $8,400.00 $6,500.00 $1,900.00 Subtracted
Utilities payable $38,000.00 $41,000.00 -$3,000.00 Subtracted
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