Ex 7- 46 Receivables and the Statement of Cash Flows The following selected info

Question

Ex 7- 46

Receivables and the Statement of Cash Flows

The following selected information is provided for Lynez Company. All sales are credit sales and all receivables are trade receivables.

Accounts receivable, January 1 net balance…………………………………………………125,000

Accounts receivable, December 31, net balance…………………………………………… 165,000

Sales for the year…………………………………………………………………………………800,000

Uncollectable accounts written off during the year………………………………………….. 14,000

Bad Debt expense for the year………………………………………………………………… 24,000

Cash expenses for the year……………………………………………………………………681,000

Net Income for the year………………………………………………………………………… 95,000

Using the format illustrated in the chapter and the preceding information, answer the following questions:

1, Using the direct method, what is the net cash flow from operations that Lynez Company would report in its statement of cash flows?

2, Assuming the use of the indirect method what adjustments to net income would be required in reporting net cash flow from operations?

Explanation / Answer

CASH FLOW STATEMENT DIRECT METHOD Sales for the year $ 800,000.00 Add: Beginning balance of accounts receivable $ 125,000.00 Less : closing balance of accounts receivable $(165,000.00) Cash receipt $ 760,000.00 Less : cash expenses $(681,000.00) Net cash flow from operating activity $    79,000.00 CASH FLOW STATEMENT INDIRECT METHOD Net income $    95,000.00 Add : Non cash expenses : Bad debts $    24,000.00 $ 119,000.00 Less : increase in current assets(Accounts receivable) $   (40,000.00) Total cash inflow from operating activity $    79,000.00

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