I have question on how to calculate the operating expenses in cash flow for operating activities.

Q. Statement of cash flows for 2017 using the direct method for operating activities.

Statement of profit or loss

for the year ending 30 June 2017

Sales

$89,000

less cost of sales

(57,000)

Gross profit

32,000

less expenses

Depreciation expense

$6,500

Advertising expense

3,200

Salaries expense

12,000

(21,700)

Loss on sale of land

(2,500)

Profit before tax

7,800

Income tax expense

2,600

Net income

5,200

Statement of financial position

as at 30 June 2017

2017

2016

Cash

$12,000

$9,500

Accounts receivable

22,000

18,400

Inventory

25,400

20,500

Prepaid advertising

10,000

8,600

Land

120,000

80,000

Equipment

190,000

130,000

Accumulated depreciation

(70,000)

(63,500)

Total assets

309,400

203,500

Accounts payable

15,300

12,100

Salaries payable

14,000

16,400

Income tax payable

1,200

700

Total liabilities

30,500

29,200

Ordinary shares

200,000

100,000

Retained earnings

78,900

74,300

Total equity

278,900

174,300

Total liabilities and equity

309,400

203,500