Question

Accounts receivable decreased $350,000 during the year. 2. Prepaid expenses increased $160,000 during the year. 3. Accounts payable to suppliers of merchandise decreased $300,000 during the year. 4. Accrued expenses payable decreased $90,000 during the year. 5. Administrative expenses include depreciation expense of $50,000. Prepare the operating activities section of the statement of cash flows using the direct method.

Answer 1

Cash flow from Operating Activities

Net Income $1,030,000

Adjustment for Non Cash Items

Add Depreciation Expense $50,000

Adjustment for Working Capital Changes :

Decrease in Accounts receivable $350,000

Increase in Prepaid expenses ($160,000)

Decrease in Accounts payable ($300,000)

Decrease in Accrued expenses payable ($90,000)

Net Cash from Operating Activities $880,000

Step-by-step explanation:

The Indirect method is required for this question. The Indirect method reconciles the Net Income to the Operating Cash flow by adjusting for 1. Non Cash items Previously included in Net income and 2. Changes in working capital items as shown above.