Cash Flows from Operating ActivitiesDirect Method

The income statement of Booker T Industries Inc. for the current year ended June 30 is as follows:

Sales					$498,850
Cost of goods sold					283,250
Gross profit					$215,600
Operating expenses:
	Depreciation expense		$38,280
	Other operating expenses		101,200
		Total operating expenses			139,480
Income before income tax					$76,120
Income tax expense					21,120
Net income					$55,000

Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:

	Increase/ Decrease
Accounts receivable (net)	$(11,060)
Inventories	3,850
Prepaid expenses	(3,690)
Accounts payable (merchandise creditors)	(7,860)
Accrued expenses payable (operating expenses)	1,100
Income tax payable	(2,640)

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Booker T Industries Inc.
Cash Flows from Operating Activities Section
For the year ended on June 30
Cash flows from operating activities:
	$
Net cash flow from operating activities		$

b. What does the direct method show about a companys cash flows from operating activities that is not shown using the indirect method?

With the , the cash received less the cash payments is the net cash flow from operating activities. Individual cash receipts and payments are reported in the Cash Flows from Operating Activities section.

The adjusts accrual-basis net income for revenues and expenses that do not involve the receipt or payment of cash to arrive at cash flows from operating activities.