In: Accounting
USE INDIRECT METHOD
The profit or loss section of the statement of comprehensive income of ITS NOT OK NOT TO BE OK company for the year ended December 31, 2020 as reproduced below:
Sales- 6,100,000
COGS- 3,700,000
GROSS PROFIT- 2,400,000
Gain on sale of equipment- 100,000
Salaries expense- (820,000)
Insurance expense- 380,000
Depreciation expense- 220,000
Profit before interest and income tax -1,080,000
Interest Expense- 120,000
Profit before income tax- 960,000
Income tax expense- 288,000
Profit- 672,000
The following info is also available
Decrease in AR- 120,000
Increase in Inventory- 280,000
Decrease in AP- 160,000
Increase in Salaries Payable- 100,000
Increase in Prepaid Insurance- 180,000
Decrease in interest payable- 30,000
Increase in income tax payable- 18,000
REQUIRE: PREPARE INDIRECT METHOD
Cash Flow prepared using the Indirect Method
Particulars | Amount | |
Cash flow from Operating Activities | ||
Net Profit Before tax | 960,000 | |
Add | Depreciation Expense | 220,000 |
Less | Gain on Sale of Equipment | (100,000) |
Total | 1,080,000 | |
A) | Change in Working Capital | |
Add | Decrease in AR | 120,000 |
Less | Increase in Inventory | (280,000) |
Less | Decrease in AP | (160,000) |
Add | Increase in Salary Payable | 100,000 |
Less | Increase in Prepaid Insurance | (180,000) |
Less | Decrease in Interest Payable | (30,000) |
Add | Increase in Income Tax Payable | 18,000 |
(412,000) | ||
B) | Total Cash Inflow from Operating Activities (A+B) | 668,000 |
Cash flow from Investing Activities | 0.00 | |
(Since the proceeds from Sale of Equipment is not given in the sum) | ||
Cash flow from Financing Activities | 0.00 | |
(Since no new financial instruments were issued or redeemed) | ||
Total Cash Inflow for the year | 668,000 |
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