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					$511,000
Cost of merchandise sold					290,500
Gross profit					$220,500
Operating expenses:
	Depreciation expense		$39,200
	Other operating expenses		105,000
		Total operating expenses			144,200
Income before income tax					$76,300
Income tax expense					21,700
Net income					$54,600

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)	$($11,760)
Inventories	3,920
Prepaid expenses	(3,780)
Accounts payable (merchandise creditors)	(7,980)
Accrued expenses payable (operating expenses)	1,260
Income tax payable	(2,660)

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:
Sales	$
Collections of accounts receivable	$
Cash received from customers
Net income
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 direct method , 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 direct method 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.