The following information is taken from the 2017 general ledger of AJ Company. S
ID: 2559398 • Letter: T
Question
The following information is taken from the 2017 general ledger of AJ Company.
Sales: Sales Revenue $ 200,000
Accounts receivable, January 1 36,000
Accounts receivable, December 31 10,000
CGS: Cost of goods sold $120,000
Accounts payable, January 1 16,000
Accounts payable, December 31 20,000
Inventory, January 1 26,000
Inventory, December 31 17,000
Rent: Rent expense $ 15,000
Prepaid rent, January 1 4,900
Prepaid rent, December 31 6,000
Salaries: Salaries and wages expense $ 48,000
Salaries and wages payable, January 1 5,000
Salaries and wages payable, December 31 4,000
Instructions
In each case, compute the amount that should be reported in the operating activities section of the statement of cash flows under the direct method.
Explanation / Answer
STATEMENT OF CASH FLOW FROM OPERATING ACTIVITIES: Cash Receipt from Customers: 226000 Cash Payments to Suppliers: -107000 Cash Payment to Employees: -49000 Cash Payment for prepaid: -16100 Cash Flow from Operating Activities 53900 WORKING NOTES: Cash Receipt from Customers: Net Sales 200000 Add: Opening Accounts Receivable 36000 Less: Closing Accounts Receivable -10000 226000 Cash Payments to Suppliers: Purchase 111000 Add: Opening Accounts payable 16000 Less: Closing Accounts Payable -20000 107000 *Purchase : cost of Goods sold + closing inventory - opening inventory 120000 + 17000 - 26000 111000 Cash Payment to Employees: Salaries expense 48000 Add: Opening Salaries payable 5000 Less: Closing Salaries payable -4000 49000 Cash Payment for prepaid: Rent expense 15000 Add: Ending Prepaid rent 6000 Less: Opening Prepaid rent -4900 16100
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