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Suppose your company sells services of $170 in exchange for $130 cash and $40 on account. Depreciation of $60 relating to equipment also is recorded. E12-4 Part 2, 3 and 4 Calculate the amount that should be reported as net cash flow from operating activities. Calculate the amount that should be reported as net income. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).

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Answer and Explanation:

Q2) Calculate the amount that should be reported as net cash flow from operating activities:

Account Receivables = $40

Depreciation = $ 60

Since there is an in Account Receivables therefore it will be negative

Since depreciation is a non cash expense, therefore, it will be added

$60 - $40 = $20 (Net Cash flow from operating activities)

Q3) Amount as net income:

Revenue = $170

Depreciation ($60)

Net Income = $110

Q4)

Net inome = $170

Depreciation = $60

Increase in Accounts Receivables = ($40)

Net Cash flow from operating activities = $190