Direct Method Assuming that a direct method is used in the Operating Activities

Question

Direct Method

Assuming that a direct method is used in the Operating Activities section, fill in the blank for each of the following situations. Show inflows as a positive number and outflows as a negative number.

Balance Sheet Beginning Ending Income Statement Cash Inflow (Outflow) 1. Accounts receivable $2,076 $5,088 Sales on account, $15,265 $ 2. Prepaid insurance $4,151 $2,958 Insurance expense, $7,032 $ 3. Income taxes payable $5,934 $8,896     Income tax expense, $20,293 $ 4. Wages payable $4,958 $2,855 Wages expense, $25,903 $

Explanation / Answer

                                                                                                                        Cash Inflow(Outflow)

1. Cash collected from Accounts receivable                                                   $ 12,253

2. Insurance Paid                                                                                           ( $ 5,839)

3. Income tax Paid                                                                                          ( $ 17,331)

4.Wages paid                                                                                                  ( $ 28,006)

Working Notes

1. Cash Collected from Accounts Receivables : Accounts receivable in the beginning $ 2,076 + Sales on Account $ 15,265 - Accounts Receivables at the end $ 5,088 = $ 12,253

2. Insurance Paid = Insurance Expenses $ 7,032 + Prepaid at the end $ 2,958 - Prepaid in tbe beginning $ 4,151= $ 5,839

3. Income tax paid = Income tax expenses $ 20,293 - Income tax payble at the end $ 8,896 + Income tax apyble in the begining $ 5,934 = $ 17,331

4. Wages paid = Wage expenses $ 25,903 - Wages payable at the end $ 2, 855 + Wages payable in the beginning $ 4,958 = $ 28,006

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