Question

The net income reported on an income statement for the current year was $63,000. Depreciation recorded on fixed assets for the year was $24,000. Balances of the current asset and current liability accounts at the end and beginning of the year are listed below. Prepare the Cash flows from operating activities section of the statement of cash flows using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Answer 1

Answer:

Cash flow from Operating Activities using indirect method start with;

Net income                                                                             $63,000

Add back depreciation                                                          $24,000

Add/lesss profit/loss from sale of assets                              $0,000

Changes in Working Capital                              

Increase or decrease trade receivable   $ 0,000

increase or decrease in inventory           $ 0,000

Increase or decrease in treade payable  $ 0,000             $ 0,000

Net cash flow from operating activities                               $87,000

Explanation:

Cash flows can be prepared in two ways; using direct method or indirect method.

irrespective of the method adopted, the major component of the cash flow statment that changes is the operating activities. under the indirect method, the operating activities starts with the net income. since the net income usually net of none-cash movement items like; depreciation, amortisation and impairment, these will be added back to the net income. Also investment activities items like; income from investment or profit from disposal of none-current assets are deducted. Further, movements in working capital (Inventory, trade receivables and trade payable) are net off and the resultant value is used to adjusted the net income too. This gives the net income from operating activities.