The following information pertains to guy’s gear company: sales $ 75,000 expenses: cost of goods sold $ 47,500 depreciation expense 5,500 salaries and wages expense 11,500 64,500 net income $ 10,500 accounts receivable decrease $ 3,500 inventory increase 7,500 salaries and wages payable increase 700 required: present the operating activities section of the statement of cash flows for guy’s gear company using the indirect method. (amounts to be deducted should be indicated with a minus sign.)

Cash flow provided from operating activities 12,700

Explanation:

Net Income: 10,500

Depreciation expense 5,500 a

Adjusted income 16,000

Change in working capital

↓Account Receivable 3,500 b

↑Inventory (7,500) c

↑Salaries payable 700 d

Total Change in working capital (3,300)

Cash flow provided from operating activities 12,700

Notes:

a The depreciation is a non-monetary concept it has no impact in cash. It is removed.

b The decrease the AR means cash was collected, therefore the cash increase

c The increase in inventory represents cash being used to purchase that inventory. Cash decreased

d the salaries payable represent the delay of cash disbursement, it increases cash.

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