FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Cash flows from (used for) operating activities:
Net income
Adjustments to reconcile net income to net cash flows from (used for) operating activities:
Depreciation expense
Gain on disposal of equipment
Changes in current operating assets and liabilities:
Increase in accounts receivable
Decrease in inventory
Decrease in prepaid insurance
Decrease in accounts payable v
Increase in income taxes payable
Net cash flows from operating activities
Feedback
b. Why is net cash flows from operating activities different than net income?
Cash flows from operating activities is based on cash basis
of accounting, whereas net income is computed using accrual basis
of
accounting.
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Transcribed Image Text:Cash flows from (used for) operating activities: Net income Adjustments to reconcile net income to net cash flows from (used for) operating activities: Depreciation expense Gain on disposal of equipment Changes in current operating assets and liabilities: Increase in accounts receivable Decrease in inventory Decrease in prepaid insurance Decrease in accounts payable v Increase in income taxes payable Net cash flows from operating activities Feedback b. Why is net cash flows from operating activities different than net income? Cash flows from operating activities is based on cash basis of accounting, whereas net income is computed using accrual basis of accounting.
Cash Flows from (Used for) Operating Activities
The income statement disclosed the following items for the year:
Depreciation expense
$42,700
Gain on disposal of equipment
24,890
Net income
328,300
The changes in the current asset and liability accounts for the year are as follows:
Increase
(Decrease)
Accounts receivable
$6,650
Inventory
(3,780)
Prepaid insurance
(1,420)
Accounts payable
(4,510)
Income taxes payable
1,420
Dividends payable
1,000
a. 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.
Statement of Cash Flows (partial)
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Transcribed Image Text:Cash Flows from (Used for) Operating Activities The income statement disclosed the following items for the year: Depreciation expense $42,700 Gain on disposal of equipment 24,890 Net income 328,300 The changes in the current asset and liability accounts for the year are as follows: Increase (Decrease) Accounts receivable $6,650 Inventory (3,780) Prepaid insurance (1,420) Accounts payable (4,510) Income taxes payable 1,420 Dividends payable 1,000 a. 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. Statement of Cash Flows (partial)
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