Question

Line Item Description Amount

Accounts Receivable, January 1: $14,955
Accounts Receivable, December 31: $8,337
Accounts Payable, January 1: $4,244
Accounts Payable, December 31: $9,723
Inventory, January 1: $10,297
Inventory, December 31: $15,890
Sales: $74,633
Cost of Goods Sold: $31,762
Washington Company uses the direct method to report cash flows from (used for) operating activities. Assume that all accounts payable are owed to merchandise suppliers.

Answer 1

To create a cash flow statement using the direct method, adjust sales and COGS by changes in accounts receivable, inventory, and accounts payable. Calculate cash collected from customers and cash paid to suppliers to find the net cash flow from operating activities.

Step-by-step explanation:

To apply the direct method, adjust sales and cost of goods sold (COGS) by changes in accounts receivable, inventory, and accounts payable to find net cash provided by operating activities.

Here's a detailed breakdown using the given figures:

1. Cash collected from customers: Start with sales of $74,633 and adjust for the change in accounts receivable.
2. Cash paid to suppliers: Begin with COGS of $31,762 and adjust for the changes in inventory and accounts payable.
3. Sum these amounts to compute the net cash flow from operating activities.

Incorporating these adjustments, the specific cash flows can be calculated as follows:

• Cash collected from customers: $74,633 + ($14,955 - $8,337) = $81,251
• Cash paid to suppliers: $31,762 + ($15,890 - $10,297) - ($9,723 - $4,244) = $32,376
• Net cash provided by operating activities: $81,251 (Cash collected) - $32,376 (Cash paid) = $48,875