Question

Cash Flow from Operating Activities (Indirect Method)

The Azuza Company owns no plant assets and had the following income statement for the year:

Sales revenue		$930,000
Cost of goods sold	$650,000
Wages expense	210,000
Rent expense	42,000
Utilities expense	12,000	914,000
Net income		$16,000

Additional information about the company includes:

	End of Year	Beginning of Year
Accounts receivable	$67,000	$59,000
Inventory	62,000	86,000
Prepaid rent	9,000	7,000
Accounts payable	22,000	30,000
Wages payable	9,000	7,000

Use the preceding information to calculate the cash flow from operating activities using the indirect method.

Remember to use negative signs with answers when appropriate.

Cash Flow from Operating Activities
	Net Income		Answer
	Add (deduct) items to convert net income to cash basis
	Accounts Receivable	AnswerIncreaseDecrease	Answer
	Inventory	AnswerIncreaseDecrease	Answer
	Prepaid Rent	AnswerIncreaseDecrease	Answer
	Accounts Payable	AnswerIncreaseDecrease	Answer
	Wages Payable	AnswerIncreaseDecrease	Answer
	Cash Provided by Operating Activities		Answer

Please answer all parts of the question.

Answer 1

Cash Flow statement Particulars Amount Net Income $ 16,000 Change in Assets & Liabilities Accounts Receivable Increased $ (8,000) Inventory Decreased $ 24,000 Prepaid expenses Increased $ (2,000) Accounts Payable Decreased $ (8,000) Wages payable Increased $ 2,000 Net Cash provided by Operating Activity | $ 24,000 >> If Assets increase we should decrease from Net income. >> If Assets decrease we should increase from Net income. >> If Liability increase we should increase from Net income. >> If Liability decrease we should increase from Net income.