Question

Leach Inc. experienced the following events for the first two years of its operations:

2019:
Wrote off an uncollectible account for $700.
Provided $110,000 of services on account.
Provided $25,000 of services and collected cash.
Collected $92,000 cash from accounts receivable.
Paid $30,000 of salaries expense for the year.
Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.

Prepare the statement of cash flows for 2019.

Answer 1

The statement of cash flows for Leach Inc. for 2019 would report net cash provided by operating activities as $87,000, including cash collected from services of $117,000 and cash paid for salaries of $30,000. Non-cash transactions are not reported in the statement of cash flows.

Step-by-step explanation:

Statement of Cash Flows for Leach Inc. for 2019

When preparing a statement of cash flows, the impact of various events on the cash flow of the business must be considered. The statement reflects only cash transactions affecting the business's liquidity. Below is a summary for Leach Inc. based on the provided events.

Cash collected from services (accounts and cash): $92,000 + $25,000 = $117,000

Cash paid for salaries expense: $30,000

Cash effect of writing off uncollectible account: $0 (non-cash transaction)

The estimate of uncollectible accounts is an adjusting entry and does not involve cash, therefore, it is not included in the statement of cash flows. The net cash provided by operating activities would be the cash collected from services minus the cash paid for salaries, which equals $117,000 - $30,000 = $87,000.

Note: Since there are no other cash flows related to investing or financing provided, we only consider operating activities for this question.