Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 99

Cash flows from operations—indirect method The financial statements of Simon Co. include the following items (amounts in thousands):

Income Statement	For the Year Ended December 31, 2011
Net income	$420
Depreciation and amortization expense	320

 

Balance Sheets	At December 31
	2011	2010
Accounts receivable Inventory  Accounts payable Income taxes payable	$125   170   80   50	$170  150  90  15

Required:

a. Calculate the net cash flow provided by operations for Simon Co. for the year ended December 31, 2011.

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b. Explain why net income is different from the net cash provided by operations.

Step 1 of 3

Calculate cash flow from operation by using indirect method

Cash flow from operation:

• It provides information concerning the total of cash-generation through company's core activities.

• In this section includes items, which are related to expenses, revenue to identify net income of the company for a period.

• Cash flow from operating activities normally generates positive cash flow from operations. A negative cash flow from operations is a sure indicator of financial trouble.