CHAPTER 13 Statement of Cash Flows ASSIGNMENT CLASSIFICATION TABLE Brief Exercises Exercises A Problems B Problems 3, 4, 5, 6, 7, 8, 9, 16 1, 2, 1, 2, 1A 1B 10, 11, 12, 13, 14 4, 5, 6, 4, 5, 6, 7, 8, 2A, 3A, 5A, 7A, 9A, 11A 2B, 3B, 5B, 7B, 9B, 11B 8, 9, 10, 11 7, 7A, 8A 7B, 8B 17 12 10 12A 8, 18, 19, 20, 21 13, 14, 15 11, 12, 13, 14 4A, 6A, 8A, 10A Study Objectives Questions *1 Indicate the usefulness of the statement of cash flows 1, 2, 6, 15 *2 Distinguish among operating, investing, and financing activities *3 Prepare a statement of cash flows using the indirect method *4 Analyze the statement of cash flows *5 Explain how to use a worksheet to prepare the statement of cash flows using the indirect method *6 Prepare a statement of cash flows using the direct method 4B, 6B, 8B, 10B *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix*to the chapter 13-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Distinguish among operating, investing, and financing activities Simple 10–15 2A Determine cash flow effects of changes in equity accounts Simple 10–15 3A Prepare the operating activities section—indirect method Simple 20–30 Prepare the operating activities section—direct method Simple 20–30 Prepare the operating activities section—indirect method Simple 20–30 Prepare the operating activities section—direct method Simple 20–30 Prepare a statement of cash flows—indirect method, and compute free cash flow Moderate 40–50 Prepare a statement of cash flows—direct method, and compute free cash flow Moderate 40–50 Prepare a statement of cash flows—indirect method Moderate 40–50 Prepare a statement of cash flows—direct method Moderate 40–50 Prepare a statement of cash flows—indirect method Moderate 40–50 Prepare a worksheet—indirect method Moderate 40–50 *4A 5A *6A 7A *8A 9A *10A 11A *12A 1B Distinguish among operating, investing, and financing activities Simple 10–15 2B Determine cash flow effects of changes in plant asset accounts Simple 10–15 3B Prepare the operating activities section—indirect method Simple 20–30 Prepare the operating activities section—direct method Simple 20–30 Prepare the operating activities section—indirect method Simple 20–30 Prepare the operating activities section—direct method Simple 20–30 Moderate 40–50 *4B 5B *6B 7B Prepare a statement of cash flows—indirect method, and compute free cash flow 13-2 ASSIGNMENT CHARACTERISTICS TABLE (Continued) Problem Number *8B 9B *10B 11B Difficulty Level Time Allotted (min.) Prepare a statement of cash flows—direct method, and compute free cash flow Moderate 40–50 Prepare a statement of cash flows—indirect method Moderate 40–50 Prepare a statement of cash flows—direct method Moderate 40–50 Prepare a statement of cash flows—indirect method Moderate 40–50 Description 13-3 13-4 Distinguish among operating, investing, and financing activities Prepare a statement of cash flows using the indirect method Analyze the statement of cash flows Explain how to use a worksheet to prepare the statement of cash flows using the indirect method Prepare a statement of cash flows using the direct method *5 *6 Broadening Your Perspective Indicate the usefulness of the statement of cash flows Study Objective Q13-18 Q13-10 Q13-11 Q13-12 Q13-14 Q13-13 Q13-19 E13-13 BE13-13 E13-14 BE13-14 P13-4A BE13-15 P13-6A E13-11 P13-8A E13-12 P13-10A BE13-12 E13-10 P13-12A E13-7 E13-9 P13-7A P13-8A E13-8 E13-9 P13-3A P13-5A P13-7A P13-9A BE13-7 E13-6 P13-2A P13-2B P13-7A P13-7B P13-4B P13-8A P13-6B P13-8B P13-8B P13-10B P13-7A P13-8A P13-7B P13-8B Analysis P13-7B BE13-8 P13-8B BE13-9 BE13-10 BE13-11 P13-11A P13-3B P13-5B P13-7B P13-9B P13-11B Application Exploring the Web Comparative Analysis Decision Making Across the Organization Communication Q13-8 Q13-20 Q13-21 Q13-17 BE13-2 BE13-3 E13-1 E13-2 E13-2 E13-3 P13-1A P13-1B Q13-3 Q13-5 Q13-7 Q13-8 Q13-9 Q13-16 Q13-4 Q13-6 BE13-1 BE13-4 BE13-5 BE13-6 E13-4 E13-5 E13-7 Q13-15 Q13-1 Q13-2 Q13-6 Knowledge Comprehension Synthesis Decision Making Across the Organization Ethics Case Comp Analysis All About You Evaluation Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems BLOOM’S TAXONOMY TABLE STUDY OBJECTIVES INDICATE THE USEFULNESS OF THE STATEMENT OF CASH FLOWS DISTINGUISH AMONG OPERATING, INVESTING, AND FINANCING ACTIVITIES PREPARE A STATEMENT OF CASH FLOWS USING THE INDIRECT METHOD ANALYZE THE STATEMENT OF CASH FLOWS *5 EXPLAIN HOW TO USE A WORKSHEET TO PREPARE THE STATEMENT OF CASH FLOWS USING THE INDIRECT METHOD *6 PREPARE A STATEMENT OF CASH FLOWS USING THE DIRECT METHOD 13-5 CHAPTER REVIEW Purpose of the Statement of Cash Flows (S.O 1) The fourth basic financial statement is the statement of cash flows The primary purpose of the statement is to provide information about an entity’s cash receipts and cash payments during a period The information in the statement of cash flows should help investors to assess the a entity’s ability to generate future cash flows b entity’s ability to pay dividends and meet obligations c reasons for the difference between net income and net cash flow from operating activities d cash investing and financing transactions during the period Classification of Cash Flows (S.O 2) The statement of cash flows classifies cash receipts and cash payments by: a Operating activities which include cash effects of transactions that create revenues and expenses and thus enter into the determination of net income b Investing activities which include (1) acquiring and disposing of property, plant, and equipment, (2) acquiring and disposing of investments, and (3) lending money and collecting the loans c Financing activities which involve liability and stockholders’ equity items and include (1) obtaining cash from issuing debt and repaying the amounts borrowed, and (2) obtaining cash from stockholders and providing them with a return on their investment Significant noncash transactions will include the conversion of bonds into common stock and the acquisition of assets through the issuance of bonds or capital stock These transactions are individually reported at the bottom of the statement of cash flows or they may appear in a separate note or Supplementary Schedule to the financial statements General Format The three classes of activities constitute the general format of the statement with the operating activities section appearing first, followed by the investing activities and financing activities sections a The net cash provided or used by each activity is totaled to show the net increase (decrease) in cash for the period b The net change in cash for the period is then added to or subtracted from the beginning-ofthe-period cash balance c Finally, any significant noncash investing and financing activities are reported in a separate schedule at the bottom of the statement The statement of cash flows is not prepared from the adjusted trial balance The information to prepare this statement usually comes from three sources: (a) a comparative balance sheet, (b) the current income statement, and (c) additional information The Major Steps The major steps in preparing the statement are: Step 1: Determine net cash provided/used by operating activities This step involves analyzing not only the current year’s income statement, but also comparative balance sheets and selected additional data 13-6 Step 2: Determine net cash provided/used by investing and financing activities All other changes in the balance sheet accounts must be analyzed to determine their effect on cash Step 3: Compare the net change in cash on the statement of cash flows with the change in the cash account reported on the balance sheet to make sure the amounts agree In performing step 1, the operating activities section must be converted from an accrual basis to a cash basis This may be done by either the indirect method or the direct method a Both methods arrive at the same total amount for “net cash provided by operations” but they differ in disclosing the items that comprise the total amount b The indirect method is used extensively in practice c The FASB has expressed a preference for the direct method The Indirect Method (S.O 3) The following points 10 through 15 explain and illustrate the indirect method The First Step—Indirect 10 The first step is to determine net cash provided/used by operating activities a Under generally accepted accounting principles the accrual basis of accounting is used which results in recognizing revenues when earned and expenses when incurred b In order to determine cash provided from operations it is necessary to report revenues and expenses on a cash basis This is determined by adjusting net income for items that did not affect cash 11 The operating section of the statement of cash flows should (a) begin with net income, (b) add (or deduct) items not affecting cash, and (c) show net cash provided (or used) by operating activities 12 In determining net cash provided by operating activities, a increases in specific current assets other than cash are deducted from net income, and decreases are added to net income b increases in specific current liabilities are added to net income, and decreases are deducted from net income c expenses for depreciation, amortization, and depletion and a loss on a sale of equipment are added to net income, and a gain on a sale of equipment is deducted from net income The Second Step—Indirect 13 The second step, net cash provided/used by investing and financing activities is generally determined from changes in noncurrent accounts reported in the comparative balance sheet and selected additional data a If the account, Land, increases $50,000 and the transaction data indicates that land was purchased for cash, a cash outflow from an investment activity has occurred b If the account, Common Stock, increases $100,000 and the transaction data indicates that additional capital stock was issued for cash, a cash inflow from a financing activity has resulted 14 The redemption of debt and the retirement or reacquisition of capital stock are cash outflows from financing activities 13-7 The Third Step—Indirect 15 The third step is to determine the net change in cash on the statement of cash flows with the change in the cash account reported on the balance sheet to make sure the amounts agree Analysis of the Statement of Cash Flows 16 (S.O 4) Free cash flow describes the cash remaining from operations after adjustment for capital expenditures and dividends The formula for free cash flow is: Free Cash Flow = Cash Provided by Operations – Capital Expenditures – Cash Dividends Use of a Worksheet *17 (S.O 5) A worksheet may be used to assemble and classify the data that will appear on the statement of cash flows The worksheet is divided into two parts: a Balance sheet accounts with columns for (1) end of last year balances, (2) reconciling items (debit and credit), and end of current year balances b Statement of cash flows effects with debit and credit columns This part of the worksheet consists of the operating, investing, and financing sections *18 The following guidelines are important in using a worksheet a In the balance sheet section, accounts with debit balances are listed separately from those with credit balances b In the cash flow effects section, inflows of cash are entered as debits in the reconciling columns and outflows of cash are entered as credits in the reconciling columns c The reconciling items shown in the worksheet are not entered in any journal or posted to any account *19 The steps in preparing a worksheet are: a Enter the balance sheet accounts and their beginning and ending balances in the balance sheet accounts section b Enter the data that explains the changes in the balance sheet accounts (other than cash) and their effects on the statement of cash flows in the reconciling columns of the worksheet c Enter the increase or decrease in cash on the Cash line and at the bottom of the worksheet This entry should enable the totals of the reconciling columns to be in agreement *20 The statement of cash flows is prepared entirely from the data that appears in the worksheet under Statement of Cash Flows Effects Preparing the Statement of Cash Flows—The Direct Method *21 (S.O 6) The following points 22 through 29 explain and illustrate the direct method The First Step—Direct *22 The first step is to determine net cash provided/used by operating activities by adjusting each item in the income statement from the accrual basis to the cash basis a If the income statement shows revenue of $120,000 and accounts receivable (net) increased $20,000 during the year, cash revenue is $100,000 ($120,000 – $20,000) b If the income statement reports operating expenses of $60,000 but accounts payable have increased $12,000 during the year, cash operating expenses are $48,000 ($60,000 – $12,000) 13-8 *23 In the operating activities section, only major classes of cash receipts and cash payments are reported as follows: a Cash receipts from (1) sales of goods and services to customers and (2) interest and dividends on loans and investments b Cash payments (1) to suppliers, (2) to employees, (3) for operating expenses, (4) for interest, and (5) for taxes *24 The formula for computing cash receipts from customers is: Revenue from sales + Decrease in accounts receivable or – Increase in accounts receivable *25 The formula for computing cash payments to suppliers is: Cost of goods sold + Increase in inventory or – Decrease in inventory + Decrease in accounts payable or – Increase in accounts payable *26 The formula for computing cash payments for operating expenses is: Operating + Increase in prepaid expenses + Decrease in accrued expenses payable expenses (exclusive of or or depreciation – Decrease in prepaid expenses – Increase in accrued expenses payable expense) *27 The formula for computing cash payments for income taxes is: Income tax expense + Decrease in income taxes payable or – Increase in income taxes payable The Second Step—Direct *28 The second step, net cash provided/used by investing and financing activities is generally determined from changes in noncurrent accounts reported in the comparative balance sheet and selected additional data The Third Step—Direct *29 The third step is to determine the net increase or decrease in cash by determining the difference between cash at the beginning of the year and cash at the end of the year 13-9 LECTURE OUTLINE A Usefulness of the Statement of Cash Flows The statement of cash flows provides information about the cash receipts cash payments, and net change in cash resulting from the operating, investing, and financing activities during a period The information in a statement of cash flows should help investors, creditors, and others assess: B a The entity’s ability to generate future cash flows b The entity’s ability to pay dividends and meet obligations c The reasons for the difference between net income and net cash provided (used) by operating activities d The cash investing and financing transactions during the period Classification of Cash Flows The statement of cash flows classifies cash receipts and cash payments as operating, investing, and financing activities TEACHING TIP ILLUSTRATION 13-1 classifies the principal types of cash receipts and payments as operating, investing, and financing activities a Operating activities include the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods or services and cash payments to suppliers and employees 13-10 Cash provided by operating activities fails to take into account that a company must invest in new fixed assets just to maintain its current level of operations Free cash flow is a measurement that provides additional insight regarding a company’s cash generating ability Free cash flow is calculated as cash provided by operating activities less capital expenditures and cash dividends *H Preparing the Worksheet—Indirect Method The steps in preparing a worksheet are: *I a Enter in the balance sheet accounts section the balance sheet accounts and their beginning and ending balances b Enter in the reconciling columns of the worksheet the data that explain the changes in the balance sheet accounts other than cash and their effects on the statement of cash flows c Enter on the cash line and at the bottom of the worksheet the increase or decrease in cash This entry should enable the totals of the reconciling columns to be in agreement Statement of Cash Flows—Direct Method Step 1: Determine the net cash provided/used by operating activities by converting net income from an accrual basis to a cash basis a Companies compute net cash provided by operating activities by adjusting each item in the income statement from the accrual basis to the cash basis (1) Increase in accounts receivable: when accounts receivable increase during the year, revenues on an accrual basis are higher than cash receipts from customers 13-16 (2) Increase in accounts payable: when accounts payable increase during the year, purchases on an accrual basis are higher than they are on a cash basis b Companies report only major classes of operating cash receipts and cash payments; the difference between cash receipts and cash payments is the net cash provided by operating activities TEACHING TIP ILLUSTRATION 13-8 provides a short in-class example of the calculation of net cash provided by operating activities using the direct method It is based on the same problem data as Illustration 13-7 (indirect method) Point out to the students that either the direct or indirect method yields the same net cash from operating activities Step 2: Analyze changes in noncurrent asset and liability accounts and record as investing and financing activities, or as significant noncash activities a Increases in any noncurrent assets (Land, Building, Equipment and Long-Term Investments) represent outflows of cash from investing activities Decreases represent inflows of cash from investing activities b Increases in long-term debt (Bonds Payable) or paid-in capital accounts (Common Stock) represent cash inflows from financing activities Decreases in long-term debt or paid-in capital accounts represent cash outflows from financing activities as does the payment of dividends Step 3: Compare the net change in cash on the statement of cash flows with the change in the cash account reported on the balance sheet to make sure the amounts agree 13-17 20 MINUTE QUIZ Circle the correct answer True/False Inflows and outflows from investing and financing activities should be reported separately on the statement of cash flows True In addition to the adjusted trial balance, information for the statement of cash flows is taken from comparative balance sheets and the current income statement True False The amortization of a patent is added back to net income to arrive at net cash provided by operating activities True 10 False The only use of a statement of cash flows is to help investors, creditors, and others assess the reasons for the difference between net income and net cash provided by operating activities True False A statement of cash flows starts with net income and adds (or deducts) items that did not affect cash to arrive at net cash provided by operating activities if the indirect method is used True False Cash outflows to purchase property, plant, and equipment would be reported in the investing section of the statement of cash flows True False When accounts receivable increases during the year, revenues on a cash basis are higher than revenues on an accrual basis True False An increase in equipment will increase net cash provided by operating activities True False The purchase of inventory and investments in property, plant, and equipment are considered cash outflows from operations True False False The issuance of shares of stock for plant assets is a significant noncash transaction True False 13-18 Multiple Choice A company has credit sales of $900,000 and cash sales of $540,000 during the same year that the Accounts Receivable account decreased by $120,000 What was the total of cash receipts from sales? a $1,320,000 b $1,560,000 c $1,020,000 d $780,000 Cash inflows from investing activities include a sale of common stock b purchase of equipment c sale of land d issuance of long-term debt Operating activities not include cash a inflows from revenue b inflows from sale of equipment c outflows for income taxes d outflows for wages Which of the following would decrease net cash provided by operating activities? a Decrease in short-term notes payable b Depreciation expense c Decrease in inventory d Loss on sale of equipment Noncash investing and financing activities a may represent significant investing and financing activities b not involve cash receipts or cash payments c are disclosed on a separate schedule d all of the above 13-19 ANSWERS TO QUIZ True/False True False False False False 10 True True False True True Multiple Choice b c b a d 13-20 ILLUSTRATION 13-1 TYPICAL RECEIPTS AND PAYMENTS CLASSIFIED BY ACTIVITY Operating activities – Income statement items Cash inflows: From sale of goods or services From interest received and dividends received Cash outflows: To suppliers for inventory To employees for services To government for taxes To lenders for interest To others for expenses Investing activities – Changes in investments and long-term assets Cash inflows: From sale of property, plant, and equipment From sale of investments in debt or equity securities of other entities From collection of principal on loans to other entities Cash outflows: To purchase property, plant, and equipment To purchase investments in debt or equity securities of other entities To make loans to another entity Financing activities – Changes in long-term liabilities and stockholders’ equity Cash inflows: From sale of common stock From issuance of debt (bonds and notes) Cash outflows: To stockholders as dividends To redeem long-term debt or reacquire capital stock (treasury stock) 13-21 ILLUSTRATION 13-2 INFORMATION SOURCES FOR ACTIVITIES OPERATING ACTIVITIES Analyze income statement items Changes in noncash current asset and current liability items INVESTING ACTIVITIES Analyze increases and decreases in noncurrent asset items FINANCING ACTIVITIES Analyze increases and decreases in noncurrent liability and stockholders’ equity items 13-22 ILLUSTRATION 13-3 FORMAT OF THE STATEMENT OF CASH FLOWS COMPANY NAME Statement of Cash Flows Period Covered Cash flows from operating activities (List of individual items) Net cash provided (used) by operating activities XX Cash flows from investing activities (List of individual inflows and outflows) Net cash provided (used) by investing activities XX Cash flows from financing activities (List of individual inflows and outflows) Net cash provided (used) by financing activities XX XXX XXX XXX Net increase (decrease) in cash XXX Cash at beginning of period XXX Cash at end of period XXX Noncash investing and financing activities (List of individual noncash transactions) XXX 13-23 ILLUSTRATION 13-4 CONVERTING NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Accrual Basis of Accounting Earned Revenues Cash Basis of Accounting Adjust Revenues to Cash Receipts Net Income Incurred Expenses INDIRECT METHOD Adjust Expenses to Cash Disbursements OR Net Cash Provided by Operating Activities DIRECT METHOD Adjust each item on the income statement from the accrual basis to the cash basis Major classes of operating cash receipts and cash payments are reported Begin with net income and adjust for income statement items that did not affect cash Reconcile net income to net cash provided (used) by operating activities 13-24 13-25 All noncash expenses are added to net income, and all noncash revenues are subtracted from net income Adjustments for noncash charges, gains and losses Noncash charges, gains and losses Depreciation expense Patent amortization expense Depletion expense Loss on sale of equipment Gain on sale of equipment Add to (Deduct from) Net Income Add Add Add Add Deduct Adjustments to convert net income to net cash provided by operating activities ILLUSTRATION 13-5 OPERATING ACTIVITIES—INDIRECT METHOD ADJUSTMENTS FOR NONCASH ITEMS 13-26 Deduct from Net Income Increase Increase Increase Decrease Decrease For Changes In Add to Individual Accounts: Net Income Accounts receivable Decrease Inventory Decrease Prepaid expenses Decrease Accounts payable Increase Accrued expenses payable Increase All changes in current assets are handled in a similar manner and all changes in current liabilities are handled in a similar manner, but the adjustments are exactly the opposite Adjustments for Current Items For Changes In: Current assets Current liabilities Deduct from Net Income Increases Decreases Add to Net Income Decreases Increases Adjustments to convert net income to net cash provided by operating activities ILLUSTRATION 13-6 OPERATING ACTIVITIES—INDIRECT METHOD ADJUSTMENTS FOR CURRENT ASSETS AND LIABILITIES ILLUSTRATION 13-7 CASH FLOWS FROM OPERATING ACTIVITIES— INDIRECT METHOD PROBLEM DATA DEMONSTRATION COMPANY Comparative Balance Sheet Accounts December 31, Current assets Accounts receivable Prepaid rent Inventory Current liabilities Accounts payable Interest payable Taxes payable 2008 2007 Change $30,000 15,000 20,000 $39,000 10,000 18,000 $9,000 Decrease 5,000 Increase 2,000 Increase 18,000 6,000 3,000 12,000 2,000 5,000 6,000 Increase 4,000 Increase 2,000 Decrease DEMONSTRATION COMPANY Income Statement For the Year Ended December 31, 2008 Revenues Sales revenue Gain on sale of land Total revenues Expenses Cost of goods sold Operating expenses Depreciation expense Interest expense Income tax expense Total expenses $400,000 20,000 $420,000 280,000 75,000 15,000 8,000 7,000 385,000 Net income $ 35,000 Using the above data, prepare the cash flows from operating activities section of the statement of cash flows using the indirect method 13-27 ILLUSTRATION 13-7 (Continued) CASH FLOWS FROM OPERATING ACTIVITIES— INDIRECT METHOD DEMONSTRATION COMPANY Statement of Cash Flows (Indirect Method) For the Year Ended December 31, 2008 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense Gain on sale of land Decrease in accounts receivable Increase in prepaid rent Increase in inventory Increase in accounts payable Increase in interest payable Decrease in taxes payable Net cash provided by operating activities 13-28 $35,000 $15,000 (20,000 ) 9,000 (5,000 ) (2,000 ) 6,000 4,000 (2,000 ) 5,000 $40,000 ILLUSTRATION 13-8 CASH FLOWS FROM OPERATING ACTIVITIES— DIRECT METHOD PROBLEM DATA DEMONSTRATION COMPANY Comparative Balance Sheet Accounts December 31, Current assets Accounts receivable Prepaid rent Inventory Current liabilities Accounts payable Interest payable Taxes payable 2008 2007 Change $30,000 15,000 20,000 $39,000 10,000 18,000 $9,000 Decrease 5,000 Increase 2,000 Increase 18,000 6,000 3,000 12,000 2,000 5,000 6,000 Increase 4,000 Increase 2,000 Decrease DEMONSTRATION COMPANY Income Statement For the Year Ended December 31, 2008 Revenues Sales revenue Gain on sale of land Total revenues Expenses Cost of goods sold Operating expenses Depreciation expense Interest expense Income tax expense Total expenses $400,000 20,000 $420,000 280,000 75,000 15,000 8,000 7,000 385,000 Net income $ 35,000 Using the above data, prepare the cash flows from operating activities section of the statement of cash flows using the direct method 13-29 ILLUSTRATION 13-8 (Continued) CASH FLOWS FROM OPERATING ACTIVITIES— DIRECT METHOD Accrual Basis Sales $400,000 20,000 Gain on sale of land Cost of goods sold 280,000 75,000 Operating expenses Depreciation expense 15,000 8,000 Interest expense 7,000 Income tax expense $ 35,000 Net income Add Deduct Cash Flows 9,000 A/R $409,000 (+) 20,000 Gain –0– 2,000 Inv 6,000 A/P 276,000 (–) 80,000 (–) 5,000 P Rent 15,000 Depre –0– 4,000 Int Pay 4,000 (–) 9,000 (–) 2,000 Tax Pay Cash from operating activities $ 40,000 DEMONSTRATION COMPANY Statement of Cash Flows (Direct Method) For the Year Ended December 31, 2008 Cash flows from operating activities Cash receipts from customers Cash payments To suppliers $276,000 For operating expenses 80,000 For interest 4,000 For income taxes 9,000 Net cash provided by operating activities 13-30 $409,000 $369,000 $ 40,000 ... provided/used by operating activities by converting net income from an accrual basis to a cash basis a Under the accrual basis of accounting, net income is not the same as net cash provided by operating... net cash provided/used by operating activities by converting net income from an accrual basis to a cash basis a Companies compute net cash provided by operating activities by adjusting each item... first step is to determine net cash provided/used by operating activities a Under generally accepted accounting principles the accrual basis of accounting is used which results in recognizing revenues