Statement of
Direct method: This method uses the basis of cash for preparing the cash flows statement.
Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company. In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.
Indirect method: Under this method, the following amounts are to be adjusted from the Net Incometo calculate the net cash provided from operating activities.
Cash flows from operating activities: These are the cash produced by the normal business operations.
To Determine: Effect of change in the method of statement of cash flows
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Financial & Managerial Accounting
- Which of the following would not be added to net income in calculating cash flows from operating activities on a statement of cash flows prepared using the indirect method? Multiple Choice A decrease in Accounts Receivable. Amortization Expense. A gain on sale of equipment. An increase in Salaries and Wages Payable.arrow_forwardCompute cash flows from operating activities for Carls Company under the indirect reporting format. Carls Company provided you with the following information for the current year. Accounts Payable relate to Selling, General and Administrative ExpensesCompute net cash flow from operating activities under the indirect reporting format. (Use a minus sign or parentheses for any cash outflows and/or net cash used by operating activities. If an input field is not used in the statement, leave the input field empty; do not select a label or enter a zero.) Carls Company Statement of Net Income For the Year Ended December 31, 2023 Sales $346,000 Depreciation Expense (39,000) Selling, General, and Administrative Expenses (122,000) Gain on Sale of Equipment 6,900 Other Expenses (7,500) Income before Taxes 184,400 Tax Expense (59,600) Net Income $124,800arrow_forwardIf a organization's accounts payable balance decreases during the period, when the indirect method is used: Multiple Choice The amount of the decrease is added within the operating activities section of the statement of cash flows. The amount of the decrease is subtracted within the operating activities section of the statement of cash flows. The amount of the decrease is added within the investing activities section of the statement of cash flows. The amount of the decrease is subtracted within the investing activities section of the statement of cash flows.arrow_forward
- When using the Indirect Method of preparing the Statement of Cash Flows, in the operating section, some accounts are added and some costs are subtracted. If you had to explain to someone why an increase in accounts receivable is subtracted and the opposite as to why a decrease In accounts recelvable is added, what information would you relay to them? (Include in your response the concept of accruals, FASB guidelines, sales and net income on the income statement, and the balance sheet). Answer should be in a paragraph form.arrow_forwardWhich of the following should be added to net income in calculating net cash flow from operating activities using the indirect method? a.a decrease in accounts payable b.an increase in inventory c.preferred dividends declared and paid d.a decrease in accounts receivablearrow_forwardWhich of the following should be subtracted from net income in computing net cash flows from operating activities using the indirect method? a.A decrease in accounts receivable b.A loss on a sale of equipment c.An increase in accounts payable d.A gain on a sale of equipmentarrow_forward
- The income statement disclosed the following items for the current year: Depreciation expense $36,000 Gain on disposal of equipment 21,000 Net income 317,500 Balances of the current assets and current liabilities accounts changed between December 31, last year, and December 31, this year, as follows: Increase in accounts receivable $5,600 Decrease in inventory 3,200 Decrease in prepaid insurance 1,200 Decrease in account payable 3,800 Increase in income taxes payable 1,200 Increase in dividends payable 850 Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cas payments, decreases in cash, or any negative adjustments. Operating Activities Section Cash flows from operating activities: Adjustments to reconcile net income to net cash flow from operating activities: Changes in current operating assets and liabilities: Prearrow_forwardWhich of the following is the adjustment that is added during the reconciliation of net income to operating cash flows in indirect method? Select one: a. An increase in Prepaid Expenses b. Amortization Expense c. An increase in Accounts Receivable d. Gain on sale of capital assetsarrow_forwardDetermining Cash Flows from (Used for) Operating Activities Yeoman Inc. reported the following data: Net income Depreciation expense Loss on disposal of equipment Increase in accounts receivable Increase in accounts payable $417,000 55,500 20,900 24,400 10,100 Prepare the Cash Flows from (used for) Operating Activities section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments. Yeoman Inc. Statement of Cash Flows (partial)arrow_forward
- Which of the following should be added to net income in calculating net cash flow from operating activities using the INDIRECT method? A. A decrease in accounts payable. B. A decrease in accounts receivable. C. Preferred dividends declared and paid. D. An increase in inventory.arrow_forwardWhen preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities? Direct Method Indirect Method IncreaseDecrease DecreaseIncrease IncreaseIncrease DecreaseDecreasearrow_forwardWhich of the following should be deducted from net income in computing net cash flows from operating activities using the indirect method? a.a decrease in accounts receivable b.preferred dividends declared and paid c.a decrease in accounts payable d.a decrease in inventoryarrow_forward
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