The preparation of the cash flows from operating activities by using Indirect Method is given below:
<h3>To calculate net cash flow from operating activities, what is included in the indirect method?</h3>
The net income from a company's income statement is first taken in order to determine cash flow from operating activities using the indirect approach. Revenue is only recorded when it is earned, not when it is received, as a result of the accrual basis used to create a company's income statement.
According to the indirect method, the statement of cash flows starts with net income or loss and then adds or subtractions are made for non-cash revenue and expense items to produce cash flow from operating activities.
Given:
The cash flow from operating activities - Indirect method
Net income $145
Adjustment made:
Add : Depreciation expense $98
Add: Loss on sale of land $4
Add: Amortization expense $5
Less: Increase in cash balance -$8 ($138 - $130)
Add: Decrease in accounts receivable $16 ($261 - $277)
Add: Decrease in inventory $15 ($465 - $480)
Add: Increase in accounts payable $9 ($203 - $194)
Less: Decrease in salaries payable -$9 ($107 - $116)
Add: Increase in interest payable $7 ($57 - $50)
Add: Increase in income tax payable $8 ($48 - $40)
Total of Adjustments $145
Net Cash flow from Operating activities $290
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The complete question is:
The portions of the financial statements for myriad products are provided below. myriad products company income statement for the year ended December 31, 2021 ($ in millions) sales $ 900 cost of goods sold 315 gross margin 585 salaries expense $ 150 depreciation expense 98 amortization expense 5 interest expense 38 loss on sale of land 4 295 income before taxes 290 income tax expense 145 net income $ 145
MYRIAD PRODUCTS COMPANY Selected Accounts from Comparative Balance Sheets December 31, 2018 and 2017 ($ in millions) Year 2018 2017 Change Cash $ 138 $ 130 $ 8 Accounts receivable 261 277 (16 ) Inventory 465 480 (15 ) Accounts payable 203 194 9 Salaries payable 107 116 (9 ) Interest payable 57 50 7 Income taxes payable 48 40 8 Required: Prepare the cash flows from operating activities section of the statement of cash flows for Myriad Products Company using the indirect method.
