27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Changes in current operating assets and liabilities—indirect method

Huluduey Corporation’s comparative balance sheet for current assets and liabilities was as follows:

  Dec 31, Year 2 Dec. 31, Year 1
Accounts receivable $18,000 $14,400
Inventory 34,800 29.700
Accounts payable 27.600 20,700
Dividends payable 8.400 10,800

Adjust net income of $160,000 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.

To determine

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 Incometo calculate the net cash provided from operating activities.

Cash flows from operating activities: These are the cash produced by the normal business operations.

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

Table (1)

To Compute: Net cash flows from operating activities under indirect method.


Working note:

Prepare the schedule in the changes of current assets and liabilities.

Schedule in the Change of Current Assets and Liabilities
Details Amount ($) Effect on Operating Activities
Beginning Balance Ending Balance


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