Balances of the current asset and current liability accounts at the end and begi

Question

Balances of the current asset and current liability accounts at the end and beginning of the year are as follows: End Beginning Cash $ 62,000 $73,000 Accounts receivable (net) 75,000 60,000 Inventories 54,000 47,000 Accounts payable (merchandise creditors) 43,000 37,000 Salaries payable 2,800 3,800 Sales (on account) 210,000 Cost of merchandise sold 70,000 Operating expenses other than depreciation 67,000 Use the direct method to prepare the cash flows from operating activities section of a statement of cash flows.

Explanation / Answer

Net Income 132,000 Depreciation expense 21800 Increase in accounts receivable -1900 Decrease in merchandise inventory 3020 Increase in prepaid expenses -1400 Increase in accounts payable 3400 Decrease in wages payable -3000 Net cash flow from operating activities 153,920 A good way to remember what to do with the changes in account balances is: For assets, do the OPPOSITE (if the asset increases, subtract from net income, and vice versa) For liablilities, do the SAME (if the liability increases, add to net income, and vice versa)

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