Question

Exercise 21-17 Indirect method; reconciliation of net income to net cash flows from operating activities [LO21-4]

The accounting records of EZ Company provided the data below.

Net income	$	54,750
Depreciation expense		9,250
Increase in inventory		2,625
Decrease in salaries payable		1,725
Decrease in accounts receivable		3,500
Amortization of patent		675
Amortization of premium on bonds		2,975
Increase in accounts payable		6,250
Cash dividends		14,500

Prepare a reconciliation of net income to net cash flows from operating activities. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Net income	$54,750
Adjustments to reconcile Net Income to net cash provided by Operating activities
Depreciation expense	$9,250
Increase in inventory	($2,625)
Decrease in salaries payable	($1,725)
Decrease in accounts receivable	$3,500
Amortization of patent	$675
Amortization of premium on bonds	$2,975
Increase in accounts payable	$6,250
Net Cash Provided by Operating activities	$73,050

No.	Conceptual Notes
1	Cash Flow Statement reflects the Cash Inflows and Outflows during a period of time.
2	Effects of Non - Cash Transaction are adjusted from Net Income.
3	Depreciation Expense, Amortisation expenses are Added back to Net Income in Cash Flow Statement.
4	Decrease in Current Assets OR Increase in Current Liabilities are ADDED to Net Income
5	Increase in Current Assets OR Decrease in Current Liabilities are DEDUCTED from Net Income