Question

E12-9 Reporting and Interpreting Cash Flows from Operating Activities from an Analyst's Perspective (Indirect Method) [LO 12-2, LO 12-5]

New Vision Company completed its income statement and balance sheet and provided the following information:

Service Revenue				$	66,000
Expenses:
Salaries and Wages	$	42,000
Depreciation		7,300
Utilities		6,000
Office		1,700			57,000
Net Income				$	9,000
Decrease in Accounts Receivable	$	12,000
Paid cash for equipment		5,000
Increase in Salaries and Wages Payable		9,000
Decrease in Accounts Payable		4,250

Required:

1. Present the operating activities section of the statement of cash flows for New Vision Company using the indirect method.
2. Of the potential causes of differences between cash flow from operations and net income, which are the most important to financial analysts?

• Required 2

Of the potential causes of differences between cash flow from operations and net income, which are the most important to financial analysts? (Select all that apply.)

	Changes in Management of Operating Activities Changes in Revenue and Expense Recognition Different Methods of Preparing Cash Flows and Income Statement.

Answer 1

	Amount ($)	Amount ($)	Source
Net Income		9,000	As per Question
Add :
Non Cash Item
Depreciation		7,300	As per Question
Cash flow from Operation before change in Working capital
Change in Working capital
Decrease in Account Receivable	12000		As per Question
Increase in Salaries and Wages Payable	9000		As per Question
Decrease in Account Payable	-4250		As per Question
Change in Working capital	16750	16,750
Cash flow from Operation activity		33,050
Cash flow from Investment activity
cash paid to Equipment	-5000		As per Question
Cash flow from Investment activity	-5000	(5,000)
Closing Cash Balance		28,050

From Financial Analysis point of view always best to have different method of cash flow and Income statement . In any company , most important document to look is Companies cash flow . Cash flow statement will disclose complete mode of actual cash under different category Like Investment , Operating and Financing activity . Cash flow statement help us to understand movement of Working capital and impact on financial . While reviewing cash flow , we need to understand “ Non cash item exist in the company and generated during the period . Cash flow statement also help us to understand Companies Capex Investment , move of borrowings , dividend payable capacity . Whether company most lying on Short OR long term loan . All above point have Impact on companies market Value . share price