Question

The following information pertains to Guy’s Gear Company: Sales $ 75,000 Expenses: Cost of Goods Sold $ 47,500 Depreciation Expense 5,500 Salaries and Wages Expense 11,500 64,500 Net Income $ 10,500 Accounts Receivable Decrease $ 3,500 Inventory Increase 7,500 Salaries and Wages Payable Increase 700 Required: Present the operating activities section of the statement of cash flows for Guy’s Gear Company using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Answer:

Cash flow provided from operating activities 12,700

Explanation:

Net Income: 10,500

Depreciation expense 5,500 a

Adjusted income 16,000

Change in working capital

↓Account Receivable 3,500 b

↑Inventory (7,500) c

↑Salaries payable 700 d

Total Change in working capital (3,300)

Cash flow provided from operating activities 12,700

Notes:

a The depreciation is a non-monetary concept it has no impact in cash. It is removed.

b The decrease the AR means cash was collected, therefore the cash increase

c The increase in inventory represents cash being used to purchase that inventory. Cash decreased

d the salaries payable represent the delay of cash disbursement, it increases cash.