Question

Hampton Company reports the following information for its recent calendar year.

Answer 1

Answer:

Cash Flow from Operating Activities

Net Income                                                          $24,000

Adjustments for Non-Cash items :

Depreciation expense                                         $12,000

Adjustments for Changes in Working Capital :

Increase in Accounts receivable                       ($10,000)

Decrease in Inventory                                         $16,000

Increase in Salaries payable                                 $1,000

Net Cash from Operating Activities                   $43,000

Explanation:

The Indirect method reconciles the Operating Profit to Operating Cash Flow by adjusting the Operating Cash flow with the following items :

1. Non-cash items previously deducted or added to Operating Profit.
2. Changes in Working Capital.