{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Operating activitie2 - and gains and losses from the sales...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Operating activities Although the total cash provided by operating activities amount is the same whether the direct or  indirect method of preparing the statement of cash flows is used, the information is provided in a  different format. The indirect method assumes everything recorded as a revenue was a cash receipt and everything  recorded as an expense was a cash payment. Remember that under the accrual basis of  accounting, revenues and expenses are recorded following the revenue recognition and matching  principles which do not require cash receipts to record revenues or cash payments to record  expenses. The operating activities section starts with net income per the income statement and  adjusts it to remove the significant non-cash items. Significant non-cash items on the income statement include depreciation and amortization expense 
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: and gains and losses from the sales of assets or retirement of debt. As depreciation expense and amortization expense are deducted in calculating net income (expenses are subtracted from revenues to determine net income), and depreciation and amortization expense do not result in cash payments by the company, depreciation expense and amortization expense are added back to net income. Given the financial statements and information for the Brothers' Quintet, Inc., net income is $6,300. Net income first needs to be adjusted by significant non-cash items from the income statement: depreciation expense and the loss on the sale of the equipment....
View Full Document

{[ snackBarMessage ]}