The direct versus the indirect method of determining cash flows from operating activities
The following accounts and corresponding balances were drawn from Larry Company's 2012 and 2011 year-end balance sheets.
Account Title | 2012 | 2011 |
Accounts receivable | $78,000 | $75,000 |
Prepaid rent | 800 | 900 |
Utilities payable | 1,500 | 1,200 |
Other operating expenses payable | 34,000 | 33,000 |
The 2012 income statement is shown below:
Income Statement | |
Sales | $272,000 |
Rent expense | (24,000) |
Utilities expense | (36,400) |
Other operating expenses | (168,000) |
Net Income | $ 43,600 |
Required
a. Prepare the operating activities section of the statement of cash flows using the direct method.
b. Prepare the operating activities section of the statement of cash flows using the indirect method.
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