Principles of Financial Accounting · free preview
Preparing the Statement of Cash Flows with the Indirect Method
The indirect method starts from net income and adjusts for noncash expenses, gains and losses, and changes in working capital to arrive at operating cash flow, then adds investing and financing flows to reconcile the change in cash.
1. Why start from net income
Why start from net income
2. The adjustment list applied
The adjustment list applied
3. Investing and financing complete the statement
Investing and financing complete the statement
4. Why companies prefer indirect
Why companies prefer indirect
5. Depreciation add-back
Why is depreciation added back to net income in the operating section?
6. Gain treatment
A company sold equipment at an 8,000 dollar gain. How does the gain affect the operating section under the indirect method?
7. Receivables increase
Accounts receivable rose 15,000 dollars during the year. How does that affect operating cash flow?
8. Payables increase
Accounts payable rose 9,000 dollars. What is the operating section effect?
9. Operating cash flow computation
Net income is 120,000 dollars, depreciation is 30,000 dollars, a gain on sale of 8,000 dollars is subtracted, receivables rose 15,000 dollars, inventory fell 6,000 dollars, and payables rose 9,000 dollars. Compute operating cash flow in dollars, number only.
10. Cash change reconciliation
Operating cash flow is 142,000 dollars, investing is negative 45,000 dollars, and financing is negative 50,000 dollars. Compute the change in cash in dollars, number only.
Practice this interactively
Free account · instant grading · spaced review that schedules itself.
Start this course for free