Question

During 2019, the Bowtie Company reported net income of $1,872 million, depreciation expense of $1,412 million and $978 million paid for purchases of property, plant, and equipment. Using the indirect method of preparing the statement of cash flows, what would be the effect on cash flows from operating activities during 2019

Answer 1

The depreciation will be added back to the net income making the net cash flows from operating activities during 2019 to be $3,284 million.

Step-by-step explanation:

The cash flow statement shows the movement in cash balance at the start and end of an accounting period. This is as a result of the company's activities which may be recognized in 3 groups namely; operating, investing and financing activities.

The non-cash items deducted or added in the income statement while computing the net income are considered in the operating activities section of the cash flow statement while any amount paid for the purchase of an asset or received from the disposal of an asset is recognized in the investing section of the cash flow statement.

The effect of the stated transactions on cash flows from operating activities during 2019 is that depreciation will be added back to the net income

= $1,872 million + $1,412 million

= $3,284 million