1. The Potter Company reported net income of $225,000 for the current year. Depreciation
recorded on buildings and equipment amounted to $74,000 for the year. Balances of the current
asset and current liability accounts at the beginning and end of the year are as follows:
Instructions Prepare the cash flows from operating activities section of the statement of cash
flows using the indirect method.
Solution
Statement of Cash Flows Particulars Amount Amount Opening cash and Cash Equivalents
15,000.00 Cash Flow from Operating Activities Net income 225,000.00 Add Provision for
taxes 1,600.00 Add Depreciation 74,000.00 Add : Decc in A/R 13,000.00 Add :Dec in
Inv 15,000.00 Less : Inc in Prepaid expenses (2,000.00) Less : Dec in Accounts payable
(6,000.00) Less : Taxes Paid (1,200.00) Cash Flow from Operating Activities 319,400
Closing cash and cash Equivalents 20,000.00