Software Distributors reports net income of $65,000. Included in that number is depreciation expense of $15,000 and a loss on the sale of land of $6,000. A comparison of this year's and last year's balance sheets reveals a decrease in accounts receivable of $28,000, a decrease in inventory of $37,000, and an increase in accounts payable of $45,000.

Required:

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

Software Distributors

Statement of cash flows (extract)

Cash flows from operations  

Net income                                   $65,000

Depreciation expense                      15,000

Loss on sale of land                       6,000

Decrease in accounts receivable           28,000

Decrease in inventory                     37,000

Increase in account payable     45,000

Net cash flows from operating activities$196,000

Explanation:

In preparing the cash flows from operations, the net income has to come first. Being that depreciation expense and loss on sale of land are non-cash items, they would be added back to the net income (because they reduced the net income before). The idea is just to get the actual cash flows.

Then, a decrease in account receivable means that more cash has been received. This would be added to your operating activities.

Thirdly, there was a decrease in inventory, implying an increase in turnover, which translates to cash receipt / inflows.

Lastly, an increase in account payable means you hold on to cash, you are yet to settle your obligations. So, no cash outflows in this regard.

metallurgy is your answer

the "study of metals and the process of refining ("

note that it says metal. metallurgy has the word "metal" in it, and so is most likely your answer (and is your answer).

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