Question

Spectacular Industries began 2018 with accounts​ receivable, inventory, and prepaid expenses totaling $ 52 comma 000 and its total current liabilities totaling $ 33 comma 000. At the end of the​ year, these same current assets totaled $ 50 comma 000​, while its total current liabilities totaled $ 27 comma 000. Net income for the year was $ 10 comma 000. Included in net income were a $ 2 comma 000 loss on the sale of land and depreciation expense of $ 4 comma 000. Show how Spectacular should report cash flows from operating activities for 2018. The company uses the indirect method. ​(Use parentheses or a minus sign for numbers to be subtracted and for a net decrease in​ cash.)

Answer 1

A Cash flow statement provides the following information:
1) Information about company's cash receipt and cash payment during an accounting period.
2) Information about company's operating, investing and financing activities.
3) Information access the company's liquidity, solvency and financing flexibility.
Under the indirect method, net income is converted operating cash flow by making adjustments for the transaction that effect net income but are non cash transactions. The adjustment includes eliminating non cash expenses, non operating items and the changes in the balance sheet account on account of accrual accounting events.

Cash flow from operating activities (CFO), consists of the inflows and outflows of cash resulting from revenue and expense transactions that affect a firm's net income.

Spectacular Industries Statement of Cash Flow (Partial) For the year ended December 31, 2018 Cash flow from Operating Activities Net Income $10,000 Add: Depreciation Expense $4,000 Add: Loss on sale of land $2,000 Decrease in current assets $2,000 Decrease in current Laibilities ($6,000) Cash flow from Operating Activities $12,000 Working Closing Opening Increase Particulars Balance Balance /(Decrease) (A) (B) (A) - (B) Current Assets $50,000 $52,000 $2,000) Current Liabilities $27,000 $33,000 ($6,000) Increase in Current Assets is Cash Outflow and Decrease in Current Assets in Cash Inflow Increase in Current Liability is Cash Inflow and Decrease in Current Liability in Cash Outflow