Question

Calculate the cash flow from operating activites

5A. Cash Flow from Operating Activities (Indirect Method) The Azuza Company owns no plant as- sets and had the following income statement for the year: $930,000 $650,000 210,000 42,000 venue Sales revenue....... ......................................... Cost of goods sold ..... Wages expense ........ Rent expense.............. Utilities expense........ Net income 12.000 914,000 $ 16,000 Additional information about the company includes: Cambridge Business Publishers Statement of Cash Flows End of Year Beginning of Year Accounts receivable......... Inventory..... Prepaid rent ............. Accounts payable......... Wages payable...................................... $67,000 62,000 9,000 22,000 9,000 $59,000 86,000 7,000 30,000 7,000 . Use the preceding information to calculate the cash flow from operating activities using the indirect method.

Answer 1

Cash Flow from Operating Activities (Indirect Method)
Net Income		$                 16,000
Add (Deduct): Items to convert net income to cash basis
Accounts Receivable	Increase	(8,000)
Inventory	Decrease	24,000
Prepaid Rent	Increase	(2,000)
Accounts Payable	Decrease	(8,000)
Wages Payable	Increase	2,000
Cash provided by Operating Activities		$                 24,000

Note:

Subtract the Beginning year with the Ending year balances of the assets and liabilities to get the difference which will be represented in the Cash Flow Statement.

Example: For Assets like Accounts Receivable = Ending of Year Balance – Beginning of Year Balance

= $67,000 - $59,000 = $8,000(Increase). There is a cash outflow as more cash is given away on accounts.

Similarly, for liabilities like Accounts Payable = Ending of Year Balance – Beginning of Year Balance

= $22,000 - $30,000 = $8,000 (Decrease). There is a cash outflow as cash is used for payment of accounts