A. I have a cash flow statement to prepare and the net income for the year I am

Question

A. I have a cash flow statement to prepare and the net income for the year I am preparing the statement for says this... net income (includes depreciation expense and gain) $56,000.Depreciation expense was $4,000 for the year and there was a gain on sale of equipment for $4,000 does this mean I subtract depreciation expense and the gain to start the cash flow net income figure,($48,000) or leave it alone and not add depreciation and subtract the gain? Confusing to me. not sure what figure I need to start with. B. I also want to know by looking at the two balance sheets and after the cash flow statement is completed should all of the figures come out to the amount of cash that is different from one balance sheet year to the next year I am looking at? There is an ($11,000) dollar difference in cash on the balance sheet.. cash went down from previous year by the $11,000.

Explanation / Answer

This is simple.. I'll explain you step by step: To arrive at the net income figure of $56000, we have had to "subtract" depreciation and "Add" gain on disposal.. But these are non cash transactions and to find cash & cash equivalents figure we have to reverse the process... We "add" depreciation but "subtract" gain... As the depreciation expense and Gain on disposal is the same the answer will also remain same to be used in cashflow as: $56000 + $4000 - $4000 = $56000 As for part B you are spot on and CORRECT already... Please I answered first and also correctly... Lifesaver plz.. Thanks..!!

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