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9 November, 07:26

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.)

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  1. 9 November, 10:14
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    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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