Q14-4SE - Horngren'S Financial And Managerial Accounting

Question

Question: Computing cash flows from operating activities—indirect method 

DVR Equipment, Inc. reported the following data for 2018: 

Income Statement: 

Net Income $ 43,000

 Depreciation Expense 6,000 

Balance Sheet:

 Increase in Accounts Receivable 6,000

 Decrease in Accounts Payable 2,000

 Compute DVR’s net cash provided by operating activities—indirect method.

Step-by-Step Solution

Answer

Answer

 

Net cash provided by operating activities is $41,000.

Step 1: Cash flow from operating activities- Indirect method

Indirect method starts with net income and adjustments are made to reconcile net income to net cash provided by operating activities.

Step 2: Cash flow from operating activities

Cash flows from operating activities
Net Income		$43,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$6,000
Increase in account receivables	($6,000)
Decrease in account payables	($2,000)
Net cash provided by operating activities		$41,000