Question

Computing operating activities cash flow—indirect method

The accounting records of CD Sales, Inc. include the following accounts: Account Beginning Balance Ending Balance Cash \( 7,500 \) 6,500 Accounts Receivable 21,000 17,500 Merchandise Inventory 20,000 30,000 Accounts Payable 15,000 19,000 Accumulated Depreciation— Equipment

2,000 Depr. Exp.

56,000 Jul. 1

58,000 Jul. 31

Retained Earnings

Dividends 15,000

63,000 Jul. 1

50,000 Net Inc.

98,000 Jul. 31

Compute CD’s net cash provided by (used for) operating activities during July 2018. Use the indirect method.

Short answer

Net cash provided by operating activities is $16,000.

Step-by-step solution

Cash flow from operating activities- Indirect method

Indirect method starts with net income and adjustments are made to reconcile net income to net cash provided by operating activities.

Cash flow from operating activities

Cash flows from operating activities
Net Income		$50,000
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation expense	$2,000
Decrease in account receivables	$3,500
Increase in merchandise inventory	($10,000)
Increase in accounts payable	$4,000
Net cash provided by operating activities		$49,500