Question

In preparing a company's statement of cash flows using the indirect method , the following information is available:

Net income $76,000

Accounts payble increaded by 20,400

accounts receivable decreased by 27,400

inventories increased by 9,800

depreciation expense 37,200

Net cash provided by operating activities was?

Answer 1

In calculating the cash flows statement from indirect method, we will start with the net income. We will add back the non cash item of depreciation in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted.

Statement of cash flows (Partial):

Description	Amount
Cash flows from operating activities:
Net income	$76000
Add: Depreciation expense	$37200
Add: Increase in accounts payable	$20400
Add: Decrease in accounts receivable	$27400
Less: Increase in inventory	($9800)
Net cash flows from operating activities	$151200