Following are the income statement and some additional information for Carolina
ID: 2471870 • Letter: F
Question
Following are the income statement and some additional information for Carolina Consulting Company. All sales were on credit and accounts receivable decreased by $900 in 2013 compared to 2012. Merchandise purchases were on credit with a decrease in accounts payable of $700 during the year. Ending inventory was $500 larger than beginning inventory. Income taxes payable increased $300 during the year. All operating expenses were paid for in cash. Prepare the cash flow from operating activities under both the direct and indirect methods.Explanation / Answer
Carolina Consulting Company:
Cash flow statement for the year ended December 31, 2013: Indirect Method
Cash flow stament for the year ended December 31, 2013: Direct Method
Cash collected from customers = Sales + decrease in accounts payable = 10,000 + 900 = $ 10,900
Cash paid for inventories and services = Cost of goods sold + Operating expenses + decrease in accounts payable + increase in inventory = 1,500 + 2,000 + 700 + 500 = $ 4,700
$ $ Cash flows from operating activities Net income before tax 5,600 Adjustments for non-cash / non-operating items Depreciation expense 900 Operating profit before working capital changes 6,500 Decrease in accounts receivable 900 Decrease in accounts payable (700) Increase in inventory (500) (300) Cash profit before taxes 6,200 Income taxes paid (5,300) Net cash flows from operating activities 900