Shaw Associates uses the indirect method for preparing the statement of cash flows.The following accounts and balances were drawn from the company's accounting records: $\begin{array}{|l|c|c|}
\hline \text { Account Title } & {\text { Begining }} & {\text { Ending }} \
\hline \text { Accounts receivable } & \$ 30,000 & \$ 40,000 \
\hline \text { Prepaid insurance } & \$ 4,600 & \$ 1,000 \
\hline \text { Accounts payable } & \$ 24,000 & \$ 25,800 \
\hline \text { Unearned revenue } & \$ 6,400 & \$ 3,800 \
\hline
\end{array}$ Net income for the period was $42,000.The net cash flows from operating activities equals:
A) $37,200.
B) $34,800.
C) $49,200.
D) $40,000.

Question

Shaw Associates uses the indirect method for preparing the statement of cash flows.The following accounts and balances were drawn from the company's accounting records: $\begin{array}{|l|c|c|}
\hline \text { Account Title } & {\text { Begining }} & {\text { Ending }} \
\hline \text { Accounts receivable } & \$  30,000 & \$  40,000 \
\hline \text { Prepaid insurance } & \$  4,600 & \$  1,000 \
\hline \text { Accounts payable } & \$  24,000 & \$  25,800 \
\hline \text { Unearned revenue } & \$  6,400 & \$ 3,800 \
\hline
\end{array}$ Net income for the period was $42,000.The net cash flows from operating activities equals:
A) $37,200.
B) $34,800.
C) $49,200.
D) $40,000.

Quizplus · Accepted Answer

The net cash flows from operating activities is calculated by adjusting net income for changes in working capital accounts. Increase in accounts receivable ($10,000) is subtracted, decrease in prepaid insurance ($3,600) is added, increase in accounts payable ($1,800) is added, and decrease in unearned revenue ($2,600) is subtracted from net income ($42,000), resulting in $34,800.

Shaw Associates Uses the Indirect Method for Preparing the Statement