Question

Hampton Company reports the following information for its recent calendar year.
 

Income Statement Data				Selected Year-End Balance Sheet Data
Sales	$	78,000		Accounts receivable increase	$	8,000
Expenses:				Inventory decrease		2,000
Cost of goods sold		38,000		Salaries payable increase		700
Salaries expense		14,000
Depreciation expense		8,000
Net income	$	18,000

 
Required:
Prepare the operating activities section of the statement of cash flows using the indirect method.

Answer 1

Statement of Cash Flows (partial)
Cash flows from operating activities
Net income	$18,000
Depreciation expense	8,000
Accounts receivable increase	(8,000)
Inventory decrease	2,000
Salaries payable increase	700
Net cash provided by operating activities	$20,700

An increase in accounts receivable reduces the amount of cash provided by operating activites hence we subtract the increase in the calculations.

Net cash provided by operating activities = $20,700