EX 13.5 Cash flows from operating activities-indirect method Obj. 1, 2 h flow fr
ID: 2554638 • Letter: E
Question
EX 13.5 Cash flows from operating activities-indirect method Obj. 1, 2 h flow from The net income reported on the income statement for the current year was $73,600. Depreciation isn activities, recorded on store equipment for the year amounted to $27,400. Balances of the current asset and 0rent liability accounts at the beginning and end of the year are as follows: 103 850 End of Year Beginning of Year Cash Accounts receivable (net) Inventories Prepaid expenses Accounts payable (merchandise creditors) Wages payable 23,500 56,000 35,500 4,750 21,800 4,900 $18,700 48,000 40,000 7,000 16,800 5,800 SNOW ME HOW A. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. BBriefly explain why net cash flow from operating activities is different than net income.Explanation / Answer
CASHFLOWS FROM OPERATING ACTIVITIES: Net income from operations 73600 Add: Non cash expense -Depreciation 27400 101000 Adjustment for changes in Operating assets and liabilities Increase in Accounts receivable -8,000 Decrease in Inventories 4,500 Decrease in Prepaid expense 2250 Increase in Accounts payable 5000 Decrease in Wages payable -900 Net Cash provided from Operating Activities 103,850 Req 2; Cash flows are difference from Net icnome due to following reasons: 1. Depreciation charged in net income is a non ccash expense, hence no cash outflow. 2. Increase in accounts receivable, means more cash blocked in this accounts. 3. Decrease in operating assets like inventory and prepaid, suggest release of cash from these accounts. 4. Increase in accounts payable, means more credit available from supplier, resulting lesser cash paid for COGS. 5. Decrease in wages payable shows the payment of dues for previous years outtsanding.
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