Question
In: Finance
In the statement of cash flows, a decrease in accounts payable is subtracted from net income...
In the statement of cash flows, a decrease in accounts payable is subtracted from net income in the operating activities section. But Why?
Solutions
Expert Solution
When we calculate the cash flows from operating activities in the cash flow statement from indirect method, we start with the net income. We will add back the non cash item of depreciation & adjust other gainsa or losses on sale of assets in it. Then we 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.
Accounts payable is a current liability. A decrease in accounts payable means that some portion of accounts payable is paid in the current year (that's why their balance is decreased). When the accounts payable is paid, then cash is reduced. So, when cash is reduced, it is subtracted from net income in finding the net cash flows from operating activities.
jeff jeffy answered 2 years agoRelated Solutions
1 A. Determining Net Income from Net The section of the statement of cash flows that...
1 A. Determining Net Income from Net The section of the
statement of cash flows that reports the cash transactions
affecting the determination of net income.Cash Flow from Operating
Activities
Curwen Inc. reported net cash flow from operating activities of
$357,500 on its statement of cash flows for the year ended December
31. The following information was reported in the Cash Flows from
Operating Activities section of the A summary of the cash receipts
and cash payments for a specific...
The income statement and a schedule reconciling cash flows from operating activities to net income are...
The income statement and a schedule reconciling cash flows from
operating activities to net income are provided below for Macrosoft
Corporation.
MACROSOFT CORPORATION
Income Statement
For the Year Ended December 31, 2021
($ in millions)
Revenues and gains:
Sales
$
320.00
Gain on sale of cash equivalents
2.50
Gain on sale of investments
24.50
$
347.00
Expenses and loss:
Cost of goods sold
$
125.00
Salaries
40.50
Interest expense
12.50
Insurance
20.50
Depreciation
10.50
Patent amortization
4.50
Loss on sale...
The income statement and a schedule reconciling cash flows from operating activities to net income are...
The income statement and a schedule reconciling cash flows from
operating activities to net income are provided below ($ in
thousands) for Peach Computers.
PEACH COMPUTERS
Income Statement
For the Year Ended December 31, 2021
Sales
$
320.0
Cost of goods sold
(160.0
)
Gross margin
160.0
Salaries expense
$
35.0
Insurance expense
12.0
Depreciation expense
5.0
Loss on sale of land
3.0
55.0
Income before tax
105.0
Income tax expense
(52.5
)
Net income
$
52.5
Reconciliation of Net...
The income statement and a schedule reconciling cash flows from operating activities to net income are...
The income statement
and a schedule reconciling cash flows from operating activities to
net income are provided below for Mike Roe Computers.
MIKE ROE COMPUTERS
Income Statement
For the Year Ended December 31, 2021
($ in millions)
Sales
$
150.20
Cost of goods
sold
(90.00
)
Gross
margin
60.20
Salaries
expense
$
18.20
Insurance
expense
12.00
Depreciation
expense
4.50
Interest
expense
5.50
(40.20
)
Gains and
losses:
Gain on sale of
equipment
11.00
Loss on sale of
land
(2.00
)...
The income statement and a schedule reconciling cash flows from operating activities to net income are...
The income statement and a schedule reconciling cash flows from
operating activities to net income are provided below ($ in
thousands) for Peach Computers.
PEACH COMPUTERS
Income Statement
For the Year Ended December 31, 2021
Sales
$
500.0
Cost of goods sold
(250.0
)
Gross margin
250.0
Salaries expense
$
59.0
Insurance expense
36.0
Depreciation expense
17.0
Loss on sale of land
15.0
127.0
Income before tax
123.0
Income tax expense
(61.5
)
Net income
$
61.5
Reconciliation of Net...
The income statement and a schedule reconciling cash flows from operating activities to net income are...
The income statement and a schedule reconciling cash flows from
operating activities to net income are provided below for Mike Roe
Computers.
MIKE ROE COMPUTERS
Income Statement
For the Year Ended December 31, 2021
($ in millions)
Sales
$
148.00
Cost of goods sold
(89.00
)
Gross margin
59.00
Salaries expense
$
18.00
Insurance expense
11.00
Depreciation expense
4.00
Interest expense
5.30
(38.30
)
Gains and losses:
Gain on sale of equipment
10.00
Loss on sale of land
(1.00
)...
The income statement and a schedule reconciling cash flows from operating activities to net income are...
The income statement and a schedule reconciling cash flows from
operating activities to net income are provided below ($ in
millions) for Mike Roe Computers.
MIKE ROE COMPUTERS
Income Statement
For the Year Ended December 31, 2018
Sales
$
148.20
Cost of goods sold
(89.10
)
Gross margin
59.10
Salaries expense
$
18.20
Insurance expense
11.20
Depreciation expense
4.10
Interest expense
5.10
(38.60
)
Gains and losses:
Gain on sale of equipment
10.20
Loss on sale of land
(1.20
)...
The income statement and a schedule reconciling cash flows from operating activities to net income are...
The income statement and a schedule reconciling cash flows from
operating activities to net income are provided below ($ in
millions) for Mike Roe Computers.
MIKE ROE COMPUTERS
Income Statement For the Year Ended December 31, 2018
Sales $ 148.00
Cost of goods sold (89.00 )
Gross margin 59.00
Salaries expense $ 18.00
Insurance expense 11.00
Depreciation expense 4.00
Interest expense 5.30 (38.30 )
Gains and losses:
Gain on sale of equipment 10.00
Loss on sale of land (1.00 )...
The income statement and a schedule reconciling cash flows from operating activities to net income are...
The income statement and a schedule reconciling cash flows from
operating activities to net income are provided below ($ in
millions) for Mike Roe Computers.
MIKE ROE COMPUTERS
Income Statement
For the Year Ended December 31, 2018
Sales
$
148.40
Cost of goods sold
(89.20
)
Gross margin
59.20
Salaries expense
$
18.40
Insurance expense
11.40
Depreciation expense
4.20
Interest expense
5.20
(39.20
)
Gains and losses:
Gain on sale of equipment
10.40
Loss on sale of land
(1.40
)...
The income statement and a schedule reconciling cash flows from operating activities to net income are...
The income statement and a schedule reconciling cash flows from
operating activities to net income are provided below ($ in
millions) for Mike Roe Computers.
MIKE ROE COMPUTERS
Income Statement
For the Year Ended December 31, 2018
Sales
$
149.60
Cost of goods
sold
(89.80
)
Gross
margin
59.80
Salaries
expense
$
19.60
Insurance
expense
11.60
Depreciation
expense
4.80
Interest
expense
5.80
(41.80
)
Gains and
losses:
Gain on sale of
equipment
11.60
Loss on sale of
land
(2.60
)...
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