EASTOWN MATERIALS, INC. Statement of Cash Flows For the Year Ended December 31, 2020 Operating Activities Net Income $344,557 Adjustments to reconcile net income to net cash used by operating activities Depreciation Expense $12,385 Amortization Expense $27,000 Amortization of Bond Premium $(5,000) Unearned Compensation $(122,917) Realized gain on sale of equipment $(1,000) Unrealized holding loss of securities $1,500 Decreased in A/R $93,275 Increase in Inventory $(483,264) Increase in Prepaid Rent $(6,767) Increase in Prepaid Insurance $(12,833) Decrease in Supplies $2,341 Increase in A/P $438,584 Increase in Salaries Payable $6,000 Increase in Utilities Payable $9,000 Increase in Payroll Taxes Payable $300 Increase in Interest Payable $13,292 Increase in Income Taxes Payable $91,591 Increase in Notes Payable- Short Term $428,360 $491,847 Net Cash Used in Operating Activities $836,404

Net cash used in Operating Activities:  834.904‬

Explanation:

Net Income                                        344,557

Depreciation Expense                         12,385

Amortization Expense                         27,000

Amortization of Bond Premium          (5,000)

Unearned Compensation                (122,917)

Realized gain on sale of equipment   (1,000)  

Adjusted income                              255,025

Change in working capital:

Decreased in A/R                                93,275

Increase in Inventory                       (483,264)

Increase in Prepaid Rent                       (6,767)

Increase in Prepaid Insurance             (12,833)

Decrease in Supplies                               2,341

Increase in A/P                                    438,584

Increase in Salaries Payable                   6,000

Increase in Utilities Payable                     9,000

Increase in Payroll Taxes Payable              300

Increase in Interest Payable                     13,292

Increase in Income Taxes Payable            91,591

Increase in Notes Payable- Short Term 428,360  

Total change in working capital:             579,879

Net cash used in Operating Activities:  834.904‬

First, we adjust the net income to remove the non-monetary concepts like depreciation and amortization

We also work based in the current asset and current liabilities account for the cash used as working capital:

increase of cash represent use of cash as it was used to acquire them.

decrease of cash means the asset was converted into cash

increase of liabilities means the use of cash to pay was delay thus, we increase our cash

and finally decrease of liabilities means it was used to settle

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