Question

The following income statement and information about changes in noncash current assets and current liabilities are reported.

SONAD COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 2,177,000 Cost of goods sold 1,066,730 Gross profit 1,110,270 Operating expenses Salaries expense $ 298,249 Depreciation expense 52,248 Rent expense 58,779 Amortization expenses–Patents 6,531 Utilities expense 23,947 439,754 670,516 Gain on sale of equipment 8,708 Net income $ 679,224 Changes in current asset and current liability accounts for the year that relate to operations follow. Accounts receivable $ 31,350 increase Accounts payable $ 12,175 decrease Inventory 11,400 increase Salaries payable 1,200 decrease Required: Prepare only 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.)

Answer 1

SONAD COMPANY
Cash Flow Statement
For year ended 31st December 2017
A. Cash Flows from Operating Activity
Net Income		$   6,79,224.00
Adjustments
Depreciation expense	$      52,248.00
Gain on sale of equipment	$      (8,708.00)
Increase in Accounts receivables	$    (31,350.00)
Increase in Inventory	$    (11,400.00)
Patent amortization expense	$         6,531.00
Decrease in Accounts Payable	$    (12,175.00)
Decrease In salaries and wages payable	$      (1,200.00)
		$      (6,054.00)
Net cash flow from Operating activities		$   6,73,170.00

General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.