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e12-7 (algo) reporting cash flows from operating activities (indirect method) lo12-2 the following information pertains to peak heights company: income statement for current year sales $ 86,700 expenses cost of goods sold $ 51,775 depreciation expense 8,000 salaries expense 10,600 70,375 net income $ 16,325 partial balance sheet current year prior year accounts receivable $ 10,000 $ 15,300 inventory 12,600 9,000 salaries payable 1,580 940 required: present the operating activities section of the statement of cash flows for peak heights company using the indirect method. note: list cash outflows as negative amounts.

Answer :

Net Cash Provided by Operating Activities is  $22,165

Operating Activities:

Net Income $16,325

Adjustments to reconcile net income to net cash provided by operating activities:

Increase in Accounts Receivable (10,000-15,300) (5,300)

Increase in Inventory (12,600-9,000) 3,600

Increase in Salaries Payable (1,580-940) 640

Depreciation Expense 8,000

Net Cash Provided by Operating Activities $22,165

The indirect method of reporting cash flows from operating activities adjusts net income for the non-cash items associated with the income statement. This includes any changes in accounts receivable, inventory and salaries payable, as well as any depreciation expense.

The net cash provided by operating activities is calculated by adding back the increases in accounts receivable, inventory, salaries payable, and depreciation expense and subtracting any decreases in these items from net income.

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