Question

The following account balances for the noncash current assets and current liabilities of Suffolk Company are available:

	December 31
	2017		2016
Accounts receivable	$43,260		$34,940
Inventory	29,860		40,010
Prepaid rent	16,550		15,230
Totals	$89,670		$90,180
Accounts payable	$26,410		$19,020
Income taxes payable	5,730		9,700
Interest payable	14,500		12,250
Totals	$46,640		$40,970

Net income for 2017 is $38,690. Depreciation expense is $18,220. Assume that all sales and all purchases are on account.

Required:

1. Prepare the Operating Activities section of the statement of cash flows using the indirect method. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.

Suffolk Company
Partial Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Provided by Operating Activities
Net income	$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
Increase in accounts receivable
Decrease in inventory
Increase in prepaid rent
Increase in accounts payable
Decrease in income taxes payable
Increase in interest payable
Net cash inflow from operating activities	$

2. Net cash inflow from operating activities is $______ and the primary reason why it is higher than net income is depreciation . Other reasons for the higher amount of net cash inflow from operating activities are increase in accounts payable  and decrease in interest payable .

Answer 1

• [1]

Suffolk Company
Partial Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Provided by Operating Activities
Net income	$38,690
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	$18,220
Increase in accounts receivable	($8,320)
Decrease in inventory	$10,150
Increase in prepaid rent	($1,320)
Increase in accounts payable	$7,390
Decrease in income taxes payable	($3,970)
Increase in interest payable	$2,250
Net cash inflow from operating activities	$63,090

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

• [2]

Net cash inflow from operating activities is $ 63,090 and the primary reason why it is higher than net income is depreciation . Other reasons for the higher amount of net cash inflow from operating activities are increase in accounts payable  and decrease in interest payable .