Question

Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $133,500. Depreciation recorded on store equipment for the year amounted to $22,000. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

	End of Year		Beginning of Year
Cash	$52,330		$48,140
Accounts receivable (net)	37,520		35,580
Inventories	51,230		54,160
Prepaid expenses	5,760		4,570
Accounts payable (merchandise creditors)	49,030		45,540
Wages payable	26,790		29,750

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Statement of Cash Flows (partial)
Cash flows from operating activities:
	$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities		$

Answer 1

Ans.	Statement of Cash Flows
	For the Year ended
	Particulars	Amount	Amount
	Cash flow from operating activities:
	Net income		$133,500
	Adjustments to reconcile Net income to Net cash
	provided by (used for) Operating Activities:
	Add: Depreciation expenses		$22,000
	Changes in current operating assets and liabilities:
	Less: Increase in accounts receivable	-$1,940
	Add: Decrease in inventories	$2,930
	Less: Increase in prepaid expenses	-$1,190
	Add: Increase in accounts payable	$3,490
	Less: Decrease in wages payable	-$2,960	$330
	Net cash Provided by Operating Activities		$155,830
	*Explanations:
	*Non cash (depreciation) & Non operating expenses are added to Net income.
	*Non cash & Non operating income are deducted from Net income.
	*Decrease in current liabilities and Increase in current assets other than cash are added to Net Income.
	*Increase in current liabilities and Decrease in current assets other than cash are added to Net Income.