Question

The net income reported on the income statement for the current year was $272,467. Depreciation recorded on fixed assets and amortization of patents for the year were $39,538 and $9,404, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows:

	End	Beginning
Cash	$45,055	$61,406
Accounts Receivable	129,733	105,523
Inventories	111,049	90,268
Prepaid Expenses	4,992	6,529
Accounts Payable (merchandise creditors)	53,271	76,339

What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?

a. $254,887

b. $254,365

c. $349,443

d. $276,418

Answer 1

--Correct Answer = Option 'a' $ 254,887

Cash Flows from Operating activities
Net Income		$272,467
Adjustements:
Depreciation	$39,538
Amortisation	$9,404
Changes in current assets and current liabilities:
Increase in account receivables	($24,210)
Increase in Inventories	($20,781)
Decrease in prepaid expenses	$1,537
Decrease in accounts payable	($23,068)
		($17,580)
Cash Flows from Operating activities		$254,887 Answer

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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