7. The following changes in balance sheet accounts for Alvaro’s Autos Inc. for 2

Question

7. The following changes in balance sheet accounts for Alvaro’s Autos Inc. for 2016:

                                                 DR                     CR         

Cash                                 $25,000

Accounts receivable       27,000

Inventory                                                          15,000

Prepaid insurance             5,000

Accounts payable                                           12,000

Retained Earnings                                          30,000

Total Changes             $57,000                $57,000                

There were no dividends declared or paid in 2016.

Prepare the cash flow from operations on an indirect basis.

Explanation / Answer

Cash flows from operating activities: Net income 30000 Adjustment to reconcile net income to Net cash provided by operating activities Increase in Accounts receivable -27000 Decrease in Inventory 15000 Increase in Prepaid insurance -5000 Decrease in Accounts payable -12000 -29000 Net cash provided by operating activities 1000

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