Suppose your company sells services of $310 in exchange for $200 cash and $110 o

Question

Suppose your company sells services of $310 in exchange for $200 cash and $110 on account. Depreciation of $130 relating to equipment is also recorded.

Prepare the journal entries to record these transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

1

Record the service revenue of $200 for cash and $110 on account.

2

Record the depreciation expense of $130.

Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2). (Amounts to be deducted should be indicated with a minus sign.)

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1.

Prepare the journal entries to record these transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

1

Record the service revenue of $200 for cash and $110 on account.

2

Record the depreciation expense of $130.

2. Calculate the amount that should be reported as net cash flow from operating activities. 3. Calculate the amount that should be reported as net income. Net income= 4.

Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2). (Amounts to be deducted should be indicated with a minus sign.)

Net Income Depreciation Increase in Accounts Receivable Net Cash Flow from Operating Activities

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Explanation / Answer

1) Preparation of Entries for recording service revenue and Depreciation :

A) Service revenue :

Cash A/c Dr.$200

Accounts receivable A/c Dr.$110

To Service Revenue A/c Cr.$310

B) Depreciation :

Depreciation A/c Dr.$130

To Fixed Assets A/c Cr.$130

2) Amount should be reported as Net cashflow from operating activities :

Net cash flow from operating activities = $200

3) Calculation of Net income :

Net income = Service Revenue - Depreciation

= $310 - $130

= $180

4) Cash flow Using Indirect method :

Particulars Amount($) Net income 180 Add : Depreciation 130 Less : Increase in A/c Receivables (110) Net cash flow from Operating activities 200

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