Question

Preparing operating activities cash flow—direct method

The accounting records of Four Seasons Parts reveal the following:

Payment of salaries and wages \( 34,000

Net income \) 21,000

Depreciation expense 10,000

Payment of income tax 16,000

Payment of interest 17,000

Collection of dividend revenue 5,000

Payment of dividends 5,000

Payment to suppliers 51,000

Collections from customers 116,000

Compute cash flows from operating activities using the direct method for the year ended December 31, 2018.

Short answer

Net cash provided by operating activities is $3,000.

Step-by-step solution

Step-by-Step SolutionStep 1: Cash flow from operating activities

Cash flows from operating activities
Receipts:
Collection from customers	$116,000
Collection of dividend revenue	$5,000
Payments:
To suppliers	($51,000)
To employees	($34,000)
For income tax	($16,000)
For Interest	($17,000)
Net cash provided by operating activities		$3,000

Treatment of net income

Net income is used while preparing cash flow statement by indirect method.