Question

Net income of Mansfield Company was $47,000. The accounting records reveal depreciation expense of $82,000 as well as increases in prepaid rent, salaries payable, and income taxes payable of $62,000, $25,000, and $22,000, respectively. Prepare the cash flows from operating activities section of Mansfield's statement of cash flows using the indirect method.

Answer 1

Answer:

Cash flows from operating activities

Net Income                                              $47,000

Add: Non cash Expense Adjustments:

Depreciation                                            $82,000

Change in Working Capital:

Prepaid rent                            ($62,000)

Salaries payable                      $25,000

Income taxes payable             $22,000

Less: Net Change in WC                         $15,000

Net Operating Cash flow                        $114,000

Explanation:

Cash Flow from operating activities cash generated from to day to day activities of the business. All the cash flows needed to operate the business smoothly.

Depreciation is a non cash expense deducted in the calculation of Net income.

Increase in Liability will provide the cash and increase in assets will use the cash. So, the increase in prepaid expense is classified as increase in Assets and Increase in the Salaries payable and Taxes payable are classified as the increase in liability.