Cash Flows from Operating Activities-Indirect MethodThe net income reported on the income statement for the current year was $154,900. Depreciation recorded on store equipment for the year amounted to $25,600. Balances of the current asset and currentliability accounts at the beginning and end of the year are as follows:End of Year Beginning of YearCash$60,720$55,860Accounts receivable (net)43,54041,280Inventories59,44062,840Prepaid expenses6,6805,310Accounts payable (merchandise creditors)56,89052,840Wages payable31,09034,520a. 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 outflows, cash payments, decreases in cash, orany negative adjustments.

Answered: Cash Flows from Operating…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter15: Statement Of Cash Flows

Section: Chapter Questions

Problem 5E: Cash flows from operating activitiesindirect method The net income reported on the income statement...

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Cash Flows from Operating Activities-Indirect Method
The net income reported on the income statement for the current year was $154,900. Depreciation recorded on store equipment for the year amounted to $25,600. 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
$60,720
$55,860
Accounts receivable (net)
43,540
41,280
Inventories
59,440
62,840
Prepaid expenses
6,680
5,310
Accounts payable (merchandise creditors)
56,890
52,840
Wages payable
31,090
34,520
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 outflows, cash payments, decreases in cash, or
any negative adjustments.

Expert Solution

Step 1

Cash flow statement provided information about the cash inflows and cash outflows of the company.

Cash flow statement consists of three activities: Operating activities, investing activities and Financing activities.

Cash flow from operating activities is computed by direct method or indirect method.

Under indirect method, cash flow from operating activities is computed by adjusting the net income to non-cash expenses and changes in current assets and current liabilities.

Increase in operating current assets should be deducted from net income and decrease in operating current assets should be added to net income.

Increase in operating current liabilities should be added to the net income and decrease in operating current liabilities should be deducted from the net income.

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