Question

Determining Net Income from Net Cash Flow from Operating Activities Sanhueza, Inc., reported a net cash flow from operating activities of $159,500 on its statement of cash flows for the year ended December 31, 2016. The following information was reported in the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method: Decrease in income taxes payable $3,400 Decrease in inventories 8,500 Depreciation 13,100 Gain on sale of investments 5,900 Increase in accounts payable 2,400 Increase in prepaid expenses 1,400 Increase in accounts receivable 6,400 Determine the net income reported by Sanhueza, Inc., for the year ended December 31, 2016. $

Answer 1

• When preparing the Statement of Cash Flows of Operating Activities – Indirect Methods, following points are to be considered:

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

• Now, since Cash flows from Operating activities are ALREADY given, and we have to FIND NET INCOME, all of the workings will be reversed.

[What used to added, will be deducted, and vice versa]

• Answer

Net Cash flows from Operating Activities	$ 159,500.00
Decrease in Income taxes Payable	$       3,400.00
Decrease in Inventory	$    (8,500.00)
Depreciation	$ (13,100.00)
Gain on Sale of Investments	$       5,900.00
Increase in Accounts payables	$    (2,400.00)
Increase in prepaid expenses	$       1,400.00
Increase in Accounts receivables	$       6,400.00
Net Income	$ 152,600.00

• ANSWER: Net Income = $ 152,600