Question

Exercise 23-3 The income statement of Sheridan Company is shown below.

SHERIDAN COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017 Sales revenue $6,630,000Cost of goods sold Beginning inventory $1,840,000Purchases 4,520,000 Goods available for sale 6,360,000 Ending inventory 1,530,000 Cost of goods sold 4,830,000 Gross profit 1,800,000 Operating expenses Selling expenses 450,000 Administrative expenses 660,000 1,110,000 Net income $690,000 Additional information:

1. Accounts receivable decreased $290,000 during the year.

2. Prepaid expenses increased $180,000 during the year.

3. Accounts payable to suppliers of merchandise decreased $260,000 during the year.

4. Accrued expenses payable decreased $120,000 during the year.

5. Administrative expenses include depreciation expense of $60,000.

Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2017, for Sheridan Company, using the indirect method.

Answer 1

Sheridan Company
Cash Flow Statement (partial)
Cash Flow from Operating Activities:
Net Income		$     6,90,000.00
Adjustments to reconcile net income to
Net cash flow from operating activities
Depreciation expense	$      60,000.00
Decrease in Accounts receivables	$   2,90,000.00
Decrease in Inventory	$   3,10,000.00
Decrease in accounts payable	$(2,60,000.00)
Increase in prepaid expense	$(1,80,000.00)
Decrease in accrued expenses payable	$(1,20,000.00)
		$     1,00,000.00
A. Cash Flow from Operating Activities		$     7,90,000.00

General notes for cash flow
Cash is increased when Current liability increase or Current asset Decrease.
Cash is Decreased when Current liability Decrease or Current asset Increase.
Depreciation or loss on sale of any asset is a non cash expense hence it will be added to net income to get operating cash
Profit on sale of asset or investment is a non cash profit and hence will be deducted from operating income.