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Social ScienceChanges in Current Operating Assets and Liabilities—Indirect MethodMohammed Corporation's comparative balance sheet for current assets and liabilities was as follows: Dec. 31, Year 2Dec. 31, Year 1Accounts receivable$22,400 $18,500 Inventory66,900 77,800 Accounts payable30,400 26,400 Dividends payable22,000 20,000 Adjust net income of $89,300 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.$
Changes in Current Operating Assets and Liabilities—Indirect Method
Mohammed Corporation's comparative balance sheet for current assets and liabilities was as follows:
| Dec. 31, Year 2 | Dec. 31, Year 1 | |||
| Accounts receivable | $22,400 | $18,500 | ||
| Inventory | 66,900 | 77,800 | ||
| Accounts payable | 30,400 | 26,400 | ||
| Dividends payable | 22,000 | 20,000 |
Adjust net income of $89,300 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.
$
Expert Answer
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Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company Indirect method: Under this method, the following amounts are to be adjusted from the Net Income to calculate the net cash provided from operating activities Cash flows from operating activities: These are the cash produced by the normal business operations.
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The below table shows the way of calculation of cash flows from operating activities: Cash flows from operating activities (Indirect method) Add: Decrease in current assets Increase in current liability Depreciation expense and amortization expense Loss on sale of plant assets Deduct: Increase in current assets Decrease in current liabilities Gain on sale of plant assets Net cash provided from or used by operating activities
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Compute the net cash flow from operating activities under indirect method: Company M Statement of cash flows- Indirect method (Partial Amount in $ Amount in $ Particulars Cash flow from operating activities: Net income Adjustments to re concile net income to net cash flow from operating activities: Change in current operating as sets and liabilities: Increase in accounts receivable Decrease in inventory Increase in accounts payable Net income from operating activities 89,300 (3,900) 10,900 4,000 100,300
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