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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 $24,000 during the year.
Required:
Prepare a schedule of operating cash flows using the direct method.
Construct a schedule showing the operating cash flows with the use of direct method.
Cash Flows from Operating Activities:
This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.
The schedule showing the operating cash flows using direct method is shown in table below:
| Operating Cash Flows | |||
| For the year ended December 31, 20X1 | |||
| Direct Method | |||
| Particulars | Income statement ($) | Adjustments ($) | Cash flows ($) |
| Revenues | 1,500,000 | (20,000)1 | 1,480,000 |
| Cost of goods sold | (20,000) | 200,0002 | Â |
| Â | Â | (20,000)3 | (820,000) |
| Depreciation expense | (100,000) | 100,000 | - |
| Amortization of patent | (20,000) | 20,000 | - |
| Wages expense | (80,000) | 12,000 | (68,000) |
| Insurance expense | (40,000) | (24,000) | (64,000) |
| Income taxes | (104,000) | Â | (104,000) |
| Net income | 156,000 | Â | Â |
| Â Â Â Â Â Â Â Net cash from operating activities | Â | Â | 424,000 |
Table (1)
Therefore, net cash flow from operating activities is $424,000...
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