(Calculating cash from operations using both the direct and indirect methods, LO 1, 3, 4) You are provided the following balance sheet information and summarized income statement for Rivulet Inc.:

Accounts Payable pertains exclusively to the purchase of inventory and Accrued Liabilities pertains exclusively to Other Expenses.
Required:

a. Prepare Rivulet’s cash from operations section of the cash flow statement using the direct method.

b. Prepare Rivulet’s cash from operations section of the cash flow statement using the indirect method.

c. Which method do you think is more informative to users of the cash flow statement? Explain. What information is available when the direct method is used that is not available when the indirect method is used?

d. Explain the difference between net income and cash from operations. Why did Rivulet have a loss on its income statement but positive cash from operations?

e. What are the implications of having a loss on the income statement but positive cash from operations?

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Rivulet Inc. Current Operating Assets and Liabilities as of December 31, 2004 and 2005 2005 2004 2005 2004 Accounts payable $192,000 $217,000 49,000 Accounts receivable $124,000 $101,000 Inventory 275,000 315,000 Accrued liabilities Rivulet Inc. Income Statement For the Year Ended December 31, 2005 32,000 Revenue $1,075,000 Cost of goods sold 532,000 Gross margin 543,000 Other expenses 392,000 Amortization expense 215,000 Loss on sale of capital assets 25,000 Net loss 89,000