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# Prepare Operating Activities Cash Flows (Indirect)

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The income statement of Vince Gill Company is shown below. (3,4)

VINCE GILL COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2008

Sales \$6,900,000
Cost of goods sold
Beginning inventory \$1,900,000
Purchases 4,400,000
Goods available for sale 6,300,000
Ending inventory 1,600,000
Cost of goods sold 4,700,000
Gross profit 2,200,000
Operating expenses
Selling expenses 450,000
1,150,000
Net income \$1,050,000

1. Accounts receivable decreased \$360,000 during the year.
2. Prepaid expenses increased \$170,000 during the year.
3. Accounts payable to suppliers of merchandise decreased \$275,000 during the year.
4. Accrued expenses payable decreased \$100,000 during the year.
5. Administrative expenses include depreciation expense of \$60,000.

Instructions

Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2008, for Vince Gill Company, using the indirect method.

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#### Solution Preview

Please see the attached Excel 97-2003 spreadsheet.

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#### Solution Summary

Given an income statement and a summary of balance sheet account changes, this solution illustrates how to compute the company's cash flows from operating activities using the indirect method.

\$2.19

## Bentley: Prepare cash flows from the operating activities section, indirect method

Bentley Company reported net income of \$320,000 for the current year. Depreciation recorded on buildings and equipment amounted to \$75,000 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

End of the Year Beginning of the Year
Cash 22000 15000
Accounts Receivable 17000 32000
Inventories 55000 65000
Prepaid expenses 7500 5000
Accounts Payable 14000 18000
Income taxes payable 600 1200

Prepare the cash flows from the operating activities section of the statement of cash flows using the indirect method.

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