Question

From the following income statement accounts in the popup​window

Answer 1

Answer:

Income Statement  For the Year Ended 2014         $

Revenue                  2,984,000

Cost of Goods Sold        (1,419,000)

Gross Profit          1,565,000

Selling, general, and administrative expenses           (454,000)

Earnings before Interest and Tax             1,111,000

Interest Expense         (288,000)

Profit before Tax         823,000

Tax Expense          (318,000)

Profit After Tax         505,000

Operating Cash Flows        $

Earnings before Interest and Tax            1,111,000

Depreciation         258,000

Interest Expense        (288,000)

Tax Expense         (318,000)

Cash Flow from Operating Activities    763,000

Explanation:

Revenue is an income statement item which is reported at the top. Cost of Goods Sold is deducted from revenue to find out Gross Profit. After the Gross Profit is derived then we deduct Selling and Administrative cost. We can now have Earnings before Interest and Tax (EBIT). Interest Expense is deducted from the EBIT. We derived Profit before Tax. After that we deduct Tax Expense and we can have Profit After Tax.

Operating cash flows starts with Earnings before Interest and Tax. We add back Depreciation and deduct interest expense and Tax expense. Cash flow from Operating Activities is derived.