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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

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

Cash flows from operating activities—indirect method

Staley Inc. reported the following data:

Net income $280,000
Depreciation expense 48,000
Loss on disposal of equipment 19,520
Increase in accounts receivable 17,280
Increase in accounts payable 8,960

Prepare the Cash flows from operating activities section of the statement of cash flows, using the indirect method.

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 Prepare: The cash flows from operating activities sections of the statement of cash flows using indirect method.

Explanation

S Incorporation
Statement of Cash Flows - Indirect Method (Partial)
Details Amount ($) Amount ($)
Cash flows from operating activities:
Net income 280,000
Adjustments to reconcile net income to net cash flow from operating activities: ...

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