The following information pertains to Guy’s Gear Company: Sales $ 80,000 Expenses: Cost of Goods Sold $ 50,000 Depreciation Expense 6,000 Salaries and Wages Expense 12,000 68,000 Net Income $ 12,000 Accounts Receivable Decrease $ 4,000 Inventory Increase 8,000 Salaries and Wages Payable Increase 750 Required: Present the operating activities section of the statement of cash flows for Guy’s Gear Company using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Answer and Explanation:

The Presentation of the operating activities section of the statement of cash flows is shown below:-

Guy’s Gear Company

Statement of cash flow using the indirect method

Cash flows from operating activities:  

Net income                                                       $12,000

Adjustments of net income

with cash provided by operating activities:  

Depreciation expense                                       $6,000

Changes in current assets

and current liabilities  

Decrease in accounts receivable        $4,000  

Increase in inventories                         -$8,000  

Increase in salaries and

wages payable                                         $750  -$3,250

Net Cash provided by operating activities       $14,750

Therefore to reach the net cash provided by operating activities we simply add net income depreciation expenses and deduct the decrease in accounts receivable, increase in inventories and wages payable.

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