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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

Indicate whether each of the following would be added to or deducted from net income in determining net cash flow from operating activities by the indirect method:

  1. a. Increase in merchandise inventory
  2. b. Increase in prepaid expenses
  3. c. Depreciation of fixed assets
  4. d. Gain on disposal of fixed assets
  5. e. Amortization of patent
  6. f. Increase in notes payable due in 120 days to vendors
  7. g. Increase in accounts payable
  8. h. Decrease in wages payable
  9. i. Decrease in notes receivable due in 60 days from customers
  10. j. Decrease in accounts receivable
  11. k. Loss on retirement of long-term debt

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.

To Indicate: Whether each of the given items would be added or deducted from net income in determining net cash flow from operating activities (indirect method).

Explanation

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
         Depreciat...

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