Question

The income statement of Indigo Company is shown below.

INDIGO COMPANY INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017
Sales revenue				$ 6,630,000
Cost of goods sold
Beginning inventory		$ 1,840,000
Purchases		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 IndigoCompany, using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

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

Statement of Cash Flows - partial
for the year ended 31 Dec 2017
Cash flows from Operating Activities
Net Income		$             690,000
Adjustments to reconcile Net Income to cash flows from Operating activities
Depreciation Expense	$                60,000
Decrease in Inventory [1840000 - 1530000]	$              310,000
Decrease in Accounts receivables	$              290,000
Increase in Prepaid expense	$            (180,000)
Decrease in Accounts Payable	$            (260,000)
Decrease in Accrued Expense payable	$            (120,000)	$             100,000
Net Cash flows [provided] by Operating Activities		$             790,000