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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
The income statement for Piura Merchandising Corporation is as follows:
Other information is as follows:
- a. Accounts payable decreased by $20,000 during the year.
- b. Accounts receivable increased by $20,000.
- c. All wages were paid at the beginning of the year; at the end of the year, wages payable had a balance of $12,000.
- d. Prepaid insurance increased by $24,000 during the year.
Required:
Prepare a schedule that provides the operating cash flows for the year using the indirect method.
Construct a schedule showing the operating cash flows with the use of indirect method.
Cash Flows from Operating Activities:
This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.
The schedule showing operating cash flows using indirect method is in the table below:
| PM Company | |
| Schedule of Cash Flow from Operating Activities | |
| For the year ended December 31, 20X1 | |
| Particulars | Amount ($) |
| Cash flows from operating activities: | Â |
| Net income | 156,000 |
| Add/ Less: | Â |
| Â Â Â Decrease in accounts payable | (20,000) |
| Â Â Â Increase in accounts receivable | (20,000) |
| Â Â Â Increase in wages payable | 12,000 |
| Â Â Â Increase in prepaid insurance | (24,000) |
| Â Â Â Decrease in inventory1 | 200,000 |
| Â Â Â Depreciation expense | 100,000 |
| Â Â Â Amortization of patent | 20,000 |
| Â Â Â Â Â Â Â Net cash from operating activities | 424,000 |
Table (1)
Therefore, net cash flow from operating activities is $424,000...
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