Math / Data & Statistics

QuestionCash flows from (used for) operating activities-indirect method The net income reported on the income statement for the current year was $\$ 150,900$ . Depreciation recorded on store equipment for the year amounted to $\$ 24,900$ . Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: \begin{tabular}{l|cc} & End of Year & Beginning of Year \\ \hline Cash & $\$ 57,490$ & $\$ 52,890$ \\ Accounts receivable (net) & 41,220 & 39,090 \\ Inventories & 56,280 & 59,500 \\ Prepaid expenses & 6,320 & 5,020 \\ Accounts payable (merchandise creditors) & 53,870 & 50,030 \\ Wages payable & 29,430 & 32,690 \end{tabular} a. Prepare the "Cash flows from (used for) operating activities" section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Studdy Solution

STEP 1

What is this asking? We need to figure out how much cash came in or went out from the company's main operations, not from things like selling equipment or taking out loans, using the indirect method, which starts with net income and adjusts it. Watch out! Increases in current assets decrease cash flow, while decreases increase it.
It's the opposite for current liabilities!
Also, depreciation is a non-cash expense, so we add it back to net income in the indirect method.

STEP 2

1. Calculate the change in each current account.
2. Adjust net income for non-cash items and changes in working capital.

STEP 3

Don't worry about cash here, we'll look at that at the very end!

STEP 4

The change in accounts receivable is $\$41,220 - \$39,090 = \$2,130$ .
This increase means cash flow decreased by $\$2,130$ , since more money is tied up in receivables.

STEP 5

The change in inventories is $\$56,280 - \$59,500 = -\$3,220$ .
This decrease means cash flow increased by $\$3,220$ , since less money is tied up in inventory.

STEP 6

The change in prepaid expenses is $\$6,320 - \$5,020 = \$1,300$ .
This increase means cash flow decreased by $\$1,300$ , as more cash was paid upfront for future expenses.

STEP 7

The change in accounts payable is $\$53,870 - \$50,030 = \$3,840$ .
This increase means cash flow increased by $\$3,840$ , since the company held onto more cash by delaying payments.

STEP 8

The change in wages payable is $\$29,430 - \$32,690 = -\$3,260$ .
This decrease means cash flow decreased by $\$3,260$ , since the company paid out more cash for wages.

STEP 9

Our starting point is the net income of $\$150,900$ .

STEP 10

Depreciation is a non-cash expense, so we add it back to net income: $\$150,900 + \$24,900 = \$175,800$ .

STEP 11

Now, we incorporate the changes we calculated earlier.
Remember increases in current assets decrease cash flow, and decreases increase it.
It's the opposite for current liabilities! $\$175,800 - \$2,130 + \$3,220 - \$1,300 + \$3,840 - \$3,260 = \$177,370$

STEP 12

The "Cash flows from (used for) operating activities" is $\$177,370$ .

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Studdy Solution

STEP 1

STEP 2

1. Calculate the change in each current account.
2. Adjust net income for non-cash items and changes in working capital.

STEP 3

Don't worry about cash here, we'll look at that at the very end!

STEP 4

The change in accounts receivable is $\$41,220 - \$39,090 = \$2,130$ .
This increase means cash flow decreased by $\$2,130$ , since more money is tied up in receivables.

STEP 5

The change in inventories is $\$56,280 - \$59,500 = -\$3,220$ .
This decrease means cash flow increased by $\$3,220$ , since less money is tied up in inventory.

STEP 6

The change in prepaid expenses is $\$6,320 - \$5,020 = \$1,300$ .
This increase means cash flow decreased by $\$1,300$ , as more cash was paid upfront for future expenses.

STEP 7

The change in accounts payable is $\$53,870 - \$50,030 = \$3,840$ .
This increase means cash flow increased by $\$3,840$ , since the company held onto more cash by delaying payments.

STEP 8

The change in wages payable is $\$29,430 - \$32,690 = -\$3,260$ .
This decrease means cash flow decreased by $\$3,260$ , since the company paid out more cash for wages.

STEP 9

Our starting point is the net income of $\$150,900$ .

STEP 10

Depreciation is a non-cash expense, so we add it back to net income: $\$150,900 + \$24,900 = \$175,800$ .

STEP 11

Now, we incorporate the changes we calculated earlier.
Remember increases in current assets decrease cash flow, and decreases increase it.
It's the opposite for current liabilities! $\$175,800 - \$2,130 + \$3,220 - \$1,300 + \$3,840 - \$3,260 = \$177,370$

STEP 12

The "Cash flows from (used for) operating activities" is $\$177,370$ .

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Studdy Solution

STEP 1

STEP 2

1. Calculate the change in each current account.2. Adjust net income for non-cash items and changes in working capital.

STEP 3

Don't worry about cash here, we'll look at that at the very end!

STEP 4

The change in accounts receivable is $41,220−$39,090=$2,130\$41,220 - \$39,090 = \$2,130$41,220−$39,090=$2,130.This **increase** means cash flow *decreased* by $2,130\$2,130$2,130, since more money is tied up in receivables.

STEP 5

The change in inventories is $56,280−$59,500=−$3,220\$56,280 - \$59,500 = -\$3,220$56,280−$59,500=−$3,220.This **decrease** means cash flow *increased* by $3,220\$3,220$3,220, since less money is tied up in inventory.

STEP 6

The change in prepaid expenses is $6,320−$5,020=$1,300\$6,320 - \$5,020 = \$1,300$6,320−$5,020=$1,300.This **increase** means cash flow *decreased* by $1,300\$1,300$1,300, as more cash was paid upfront for future expenses.

STEP 7

The change in accounts payable is $53,870−$50,030=$3,840\$53,870 - \$50,030 = \$3,840$53,870−$50,030=$3,840.This **increase** means cash flow *increased* by $3,840\$3,840$3,840, since the company held onto more cash by delaying payments.

STEP 8

The change in wages payable is $29,430−$32,690=−$3,260\$29,430 - \$32,690 = -\$3,260$29,430−$32,690=−$3,260.This **decrease** means cash flow *decreased* by $3,260\$3,260$3,260, since the company paid out more cash for wages.

STEP 9

Our **starting point** is the net income of $150,900\$150,900$150,900.

STEP 10

Depreciation is a non-cash expense, so we **add it back** to net income: $150,900+$24,900=$175,800\$150,900 + \$24,900 = \$175,800$150,900+$24,900=$175,800.

STEP 11

STEP 12

The "Cash flows from (used for) operating activities" is $177,370\$177,370$177,370.

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1. Calculate the change in each current account.
2. Adjust net income for non-cash items and changes in working capital.

The change in accounts receivable is $\$41,220 - \$39,090 = \$2,130$ .
This increase means cash flow decreased by $\$2,130$ , since more money is tied up in receivables.

The change in inventories is $\$56,280 - \$59,500 = -\$3,220$ .
This decrease means cash flow increased by $\$3,220$ , since less money is tied up in inventory.

The change in prepaid expenses is $\$6,320 - \$5,020 = \$1,300$ .
This increase means cash flow decreased by $\$1,300$ , as more cash was paid upfront for future expenses.

The change in accounts payable is $\$53,870 - \$50,030 = \$3,840$ .
This increase means cash flow increased by $\$3,840$ , since the company held onto more cash by delaying payments.

The change in wages payable is $\$29,430 - \$32,690 = -\$3,260$ .
This decrease means cash flow decreased by $\$3,260$ , since the company paid out more cash for wages.

Our starting point is the net income of $\$150,900$ .

Depreciation is a non-cash expense, so we add it back to net income: $\$150,900 + \$24,900 = \$175,800$ .

The "Cash flows from (used for) operating activities" is $\$177,370$ .