Hampton Company reports the following information for its recent calendar year. Income Statement Data Selected Year-End Balance Sheet Data Sales $ 74,000 Accounts receivable increase $ 9,000 Expenses Inventory decrease 4,000 Cost of goods sold 41,000 Salaries payable increase 900 Salaries expense 8,000 Depreciation expense 4,000 Net income $ 21,000 Required: Prepare the operating activities section of the statement of cash flows for Hampton Company using the indirect method.

Answer and Explanation:

As per the data given in the question,

The preparation of the operating activities section of the cash flow statement using the indirect method is shown below:

Cash flow from operating activities:

Net income $21,000

Add: Depreciation $4,000

Less: Accounts receivable expense -$9,000

Add: Inventory decrease $4,000

Add: Salaries payable increase $900

Net cash flow provided by operating activities $20,900

Net income is added because it provided before adjustment.

Depreciation is added because it is non cash expense.

Accounts receivable expense is deducted because it is trap in account receivable.

Inventory decrease is added because it depicts that the inventory is converted in cash.

Salaries payable increase is added because it shows cash is not paid which rise the level of cash.  

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