The income statement of Vince Gill Company is shown below. VINCE GILL COMPANY IN

Question

The income statement of Vince Gill Company is shown below.

VINCE GILL COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2014

$6,969,210

$1,897,320

4,490,090

6,387,410

1,608,890

4,778,520

2,190,690

449,610

703,460

1,153,070

$1,037,620

Additional information:

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

VINCE GILL COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2014

Sales revenue

$6,969,210

Cost of goods sold    Beginning inventory

$1,897,320

   Purchases

4,490,090

   Goods available for sale

6,387,410

   Ending inventory

1,608,890

   Cost of goods sold

4,778,520

Gross profit

2,190,690

Operating expenses    Selling expenses

449,610

   Administrative expenses

703,460

1,153,070

Net income

$1,037,620

Explanation / Answer

For items that normally appear on the income statement, cash flows from operating activities display the net amount of cash that was received or disbursed during a given period of time. The direct method for calculating this flow involves deducting from cash sales only those operating expenses that consumed cash. In this method, each item on an income statement is converted directly to a cash basis, and each cash effect is directly reported. To employ this direct method, use the following equation:

Once the cash inflows and outflows from operating activities are calculated, they are added together in the "Operating Activities" section of the cash flow statement to obtain the net cash flow for a company's

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