Question

Pharoah Company reported a net income of $184,850 for 2022. Pharoah Company also reported depreciation expense of $33,700 and a loss of $4,690 on the disposal of plant assets. The comparative balance sheets show an increase in accounts receivable of $15,150 for the year, a $15,640 increase in accounts payable, and a $4,030 increase in prepaid expenses.

Prepare the operating activities section of the statement of cash flows for 2022. Use the indirect method.

Answer 1

Cash Flow from operating activities

Net Income $184,850

Add: Non cash expenses

Depreciation $33,700

Others Gains or Loss adjustments:

Add: Loss on the disposal $4,690

Working Capital adjustments

Increase in account receivables ($15,150)

Increase in account payable $15,640

Increase in Prepaid Expense ($4,030)

Net Cash flow from operating activities $219,700

Step-by-step explanation:

Operating cash flows are cash inflow and outflow generated from to day to day business activities. All the cash flows needed to operate the business smoothly.

Operating Cash flows from indirect method is calculated by adding non cash items in net income and any other working capital adjustment to the cash flows.