Homework Assignment 5

a- Cash Flows from Operating Activities Indirect Method

Net income $180,000

Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation $67,500
Changes in Cash $3,500
Changes in Accounts Receivable $4,900
Changes in Inventory $ (32,700)
Changes in Prepaid Expenses $2,200
Changes in Accounts Payable $ (7,350)
Changes in Salaries Payable $1,300

Net cash operating activities $219,350

b- If the direct method had been used, would the net cash flow from operating activitie
s have been the same? Explain
Net cash flow from operating activities would have been the same even if we used the direct
method instead of Indirect Method of cash flow. The major difference in both of the methods is
direct method uses the actual amounts of all cash receipts and payments as compare to indirect
method. In indirect method, the differences between revenues earned and cash received and the
differences between expenses incurred and actual cash payments for those expenses are been
used.