Question

Arundel Company disclosed the following information for its recent calendar year. Income Statement Data Selected Year-End Balance Sheet Data Revenues $ 90,000 Accounts receivable decrease $ 24,000 Expenses: Purchased a machine for cash 23,000 Salaries expense 72,000 Salaries payable increase 29,000 Utilities expense 34,000 Other accrued liabilities decrease 17,000 Depreciation expense 29,400 Other expenses 8,800 Net loss $ (54,200 ) Prepare the operating activities section of the statement of cash flows using the indirect method

Answer 1

Answer:

net loss                        (54,200)

adjsutment for non-monetary terms:

depreciation expense 29,400

adjsuted loss               (24.800)

Change in Working Capital

Accounts receivable decrease       24,000

Salaries payable increase               29,000

Other accrued liabilities decrease (17,000 )

net change in working capital         36,000

cash flow generated for operating activities 11,200

Explanation:

We remove the depreciation expense as is a non-monetary term. Is an accounting expense it do not generate the outflow of cash and where we focus on how to follow cash.

Reasoning for change in working capital

(A) The decrease inAR means we collect more cash than sale of the period, we collect from prior period too.

(B) the increase in salaries payable means we delay the payment, thus saving cash

(C) the decrease in liaiblities means we pay them, thus cash decrease