Homework Answers
In calculating the cash flows from operating activities or operating cash flows from indirect method, we will start with the net income. We will add back the non cash item of depreciation in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted.
Calculation of cash flows from operating activities:
| Description | Amount |
| Net income | 250 |
| Adjustments to reconcile net income | |
| Add: Depreciation | 50 |
| Add: Decrease in inventory | 40 |
| Less: Increase in accounts receivables | (20) |
| Less: Decrease in wages payable | (10) |
| Add: Increase in unearned revenues | 30 |
| Cash flows from operating activities | 340 |
So, cash flows from operating activities or operating cash flows is $340
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