【正文】 by operating activities by converting ine from accrual basis to cash basis. SO 4 Prepare a statement of cash flows using the indirect method. Preparation of the Statement of Cash Flows – Indirect Method Common adjustments to Net Ine (Loss): ? Add back noncash expenses (depreciation, amortization, or depletion expense). ? Deduct gains and add losses. ? Changes in noncash current assets and current liabilities. 1225 Which is an example of a cash flow from an operating activity? a. Payment of cash to lenders for interest. b. Receipt of cash from the sale of capital stock. c. Payment of cash dividends to the pany’s stockholders. d. None of the above. Question SO 4 Prepare a statement of cash flows using the indirect method. Step 1: Operating Activities 1226 Depreciation Expense Although depreciation expense reduces ine, it does not reduce cash. The pany must add it back to ine. SO 4 Prepare a statement of cash flows using the indirect method. C a s h f l ow s f r om op e r a t i ng a c t i v i t i e s :N e t i nc om e 1 4 5 , 0 0 0$ A dj us t m e nt s t o r e c on c i l e ne t i nc om e t o ne t c a s hpr ov i de d by op e r a t i ng a c t i v i t i e s :D e pr e c i a t i on e x pe ns e 9 , 0 0 0 N e t c a s h pr ov i de d by op e r a t i ng a c t i v i t i e s 1 5 4 , 0 0 0$ Illustration 127 Step 1: Operating Activities 1227 Loss on Sale of Equipment Companies report as a source of cash in the investing activities section the actual amount of cash received from the sale. ? Any loss on sale is added to ine in the operating section. ? Any gain on sale is deducted from ine in the operating section. SO 4 Prepare a statement of cash flows using the indirect method. Operating Activities 1228 SO 4 Prepare a statement of cash flows using the indirect method. Operating Activities C a s h f l ow s f r om op e r a t i ng a c t i v i t i e s :N e t i nc om e 1 4 5 , 0 0 0$ A dj us t m e nt s t o r e c on c i l e ne t i nc om e t o ne t c a s hpr ov i de d by op e r a t i ng a c t i v i t i e s :D e pr e c i a t i on e x pe ns e 9 , 0 0 0 Lo s s on s a l e of e qu i pm e nt 3 , 0 0 0 N e t c a s h pr ov i de d by op e r a t i ng a c t i v i t i e s 1 5 7 , 0 0 0$ Illustration 128 Loss on Sale of Equipment 1229 Changes to Noncash Current Asset Accounts When the Accounts Receivable balance decreases, cash receipts are higher than revenue earned under the accrual basis. SO 4 Prepare a statement of cash flows using the indirect method. Operating Activities Company adds to ine the amount of the decrease in accounts receivable. Accounts Receivable 1/1/012 Balance 30,000 Revenues 507,000 Receipts from customers 517,000 12/31/12 Balance 20,000 Illustration 129 1230 SO 4 Prepare a statement of cash flows using the indirect method. Operating Activities C a s h f l o w s f r o m o p e r a t i n g a c t i v i t i e s :N e t i n c o m e 1 4 5 , 0 0 0$ A d j u s t m e n t s t o r e c o n c i l e n e t i n c o m e t o n e t c a s hp r o v i d e d b y o p e r a t i n g a c t i v i t i e s :D e p r e c i a t i o n e x p e n s e 9 , 0 0 0 L o s s o n s a l e o f e q u i p m e n t 3 , 0 0 0 D e c r e a s e i n a c c o u n t s r e c e i v a b l e 1 0 , 0 0 0 N e t c a s h p r o v i d e d b y o p e r a t i n g a c t i v i t i e s 1 6 7 , 0 0 0$ Illustration 1210 Changes to Noncash Current Asset Accounts 1231 When the Inventory balance increases, the cost of merchandise purchased exceeds the cost of goods sold. SO 4 Prepare a statement of cash flows using the indirect method. Operating Activities Changes to Noncash Current Asset Accounts Inventory 1/1/12 Balance 10,000 Purchases 155,000 Cost of goods sold 150,000 12/31/12 Balance 15,000 Cost of goods sold does not reflect cash payments made for merchandise. The pany deducts from ine this inventory increase. 1232 SO 4 Prepare a statement of cash flows using the indirect method. Operating Activities C a s h f l o w s f r o m o p e r a t i n g a c t i v i t i e s :N e t i n c o m e 1 4 5 , 0 0 0$ A d j u s t m e n t s t o r e c o n c i l e n e t i n c o m e t o n e t c a s hp r o v i d e d b y o p e r a t i n g a c t i v i t i e s :D e p r e c i a t i o n e x p e n s e 9 , 0 0 0 L o s s o n s a l e o f e q u i p m e n t 3 , 0 0 0 D e c r e a s e i n a c c o u n t s r e c e i v a b l e 1 0 , 0 0 0 I n c r e a s e i n i n v e n t o r y ( 5 , 0 0 0 ) N e t c a s h p r o v i d e d b y o p e r a t i n g a c t i v i t i e s 1 6 2 , 0 0 0$ Changes to Noncash Current Asset Accounts Illustration 1210 1233 When the Prepaid Expense balance increases, cash paid for expenses is higher than expenses reported on an accrual basis. The pany deducts the decrease from ine to arrive at cash provided by operating activities. If prepaid expenses decrease, reported expenses are higher than the expenses paid. SO 4 Prepare a statement of cash flows using the indirect method. Operating Activities Changes to Noncash Current Asset Accounts 1234 SO 4 Prepare a statement of cash flows using the indirect method. Operating Activities C a s h f l o w s f r o m o p e r a t i n g a c t i v i t i e s :N e t i n c o m e 1 4 5 , 0 0 0$ A d j u s t m e n t s t o r e c o n c i l e n e t i n c o m e t o n e t c a s hp r o v i d e d b y o p e r a t i n g a c t i v i t i e s :D e p r e c i a t i o n e x p e n s e 9 , 0 0 0 L o s s o n s a l e o f e q u i p m e n t 3 , 0 0 0 D e c r e a s e i n a c c o u n t s r e