Cash Flows from Operating Activities (Indirect and Direct Methods)
Presented

question 4

Essay

Cash flows from operating activities (indirect and direct methods)
Presented below is the latest income statement of Oxford Ltd.: In addition, the following information related to net changes in working capital is available: $\begin{array}{lc}&\text { Debit}&\text { Credit}\\\text { Cash } & \$ 12,000 \\\text { Accounts rece ivable (net) }& 8,000 \\\text { Inventories }&&\$19,400 \\\text { Salar ies payable (operating expenses) } &6,000\\\text { Accounts payable } && 9,000 \\\text { Income tax payable. }&3,000\end{array}$ Oxford Ltd. also reports that depreciation expense for the year was $ 13,700 and that the deferred tax liability account increased $ 2,600.
Instructions
Prepare a schedule calculating the net cash flow from operating activities that would be shown on a statement of cash flows:
a) using the indirect method.
b) using the direct method.

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Definitions:

Precautionary Demand

The demand for liquid assets or money for the purpose of meeting unforeseen emergencies or taking advantage of unexpected opportunities.

Liquidity Trap

A situation where low interest rates fail to increase lending and economic growth due to people preferring to hold onto cash.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period, typically showing a downward slope from left to right.

Supply of Money

The total value of money available in an economy at a specific time, including cash, coins, and balances in bank accounts.