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Hampton Company reports the following information for its recent calendar year.
Income Statement Data Selected Year-End Balance Sheet Data
Sales $ 160,000 Accounts receivable increase 10,000
Expenses Inventory decrease 16,000
Cost of goods sold 100,000 Salaries payable increase 1,000
Salaries expense 24,000
Depreciation expense 12,000
Net income $ 24,000
Required:
Prepare the operating activities section of the statement of cash flows for Hampton Company using the indirect method.

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Zviko

Answer:

Cash Flow from Operating Activities

Net Income                                                          $24,000

Adjustments for Non-Cash items :

Depreciation expense                                         $12,000

Adjustments for Changes in Working Capital :

Increase in Accounts receivable                       ($10,000)

Decrease in Inventory                                         $16,000

Increase in Salaries payable                                 $1,000

Net Cash from Operating Activities                   $43,000

Explanation:

The Indirect method reconciles the Operating Profit to Operating Cash Flow by adjusting the Operating Cash flow with the following items :

  1. Non-cash items previously deducted or added to Operating Profit.
  2. Changes in Working Capital.
  • The preparation of the  operating activities section of the statement of cash flows for Hampton Company using the indirect method is presented below:

Cash Flow from Operating Activities

Net Income                                                          $24,000  

Adjustments for Non-Cash items :  

Depreciation expense                                         $12,000  

Adjustments for Changes in Working Capital :  

Increase in Accounts receivable                       ($10,000)  

Decrease in Inventory                                         $16,000  

Increase in Salaries payable                                 $1,000  

Net Cash from Operating Activities                   $43,000

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