Question

The net income reported on the income statement for the current year was $257,354. Depreciation recorded on fixed assets and amortization of patents for the year were $38,458 and $8,183, 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	$38,512	$58,825
Accounts receivable	121,075	106,825
Inventories	110,540	96,483
Prepaid expenses	3,229	7,216
Accounts payable (merchandise creditors)	45,517	60,398

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

$323,056

$246,653

$264,794

$275,688

Answer 1

• Correct Answer = Option #3: $ 264,794

Cash flows from Operating activities
Net Income	$                    257,354
Non Cash items:
Depreciation expense	$                       38,458
Amortisation expense	$                         8,183
Changes in operating assets and liabilities:
Increase in Accounts receivables	$                    (14,250)
Increase in Inventories	$                    (14,057)
Decrease in Prepaid expenses	$                         3,987
Decrease in Accounts payables	$                    (14,881)
Net Cash flows from Operating activities	$                    264,794 = ANswer

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