Question

You are provided with the following balance sheet information and summarized income statement for Rivulet Inc.:


All sales are credit sales. 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 indirect method.
b. Calculate these amounts:
i. cash collected from customers
ii. cash paid to suppliers of inventory
iii. cash paid for other expenses
Use this information to prepare Rivulet’s cash from operations section of the cash flow statement using the direct method.
c. Do you think the direct method or indirect method provides more useful information to stakeholders? Explain. What information is available when the direct method is used that isn’t 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 fromoperations?


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  • CreatedFebruary 26, 2015
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