Question
The income statement of Vantage SA is shown below.
Vantage SA
Income Statement
For the year ended December 31, 2027
| Sales Revenue |
| 8,280,000 |
| Cost of Goods Sold | | |
| Beginning inventory | 2,280,000 | |
| purchases | 5,280,000 | |
| Goods available for sale | 7,560,000 | |
| Ending Inventory | 1,920,000 | |
| Cost of Goods Sold | | 5,640,000 |
| Gross Profit | | 2,640,000 |
| Operating Expenses | | |
| Selling Expenses | 540,000 | |
| Administrative Expenses | 840,000 | 1,380,000 |
| Net Income | | 1,260,000 |
Additional information:
- Accounts Receivable decreased by $372,000 during the year.
- Prepaid expense increased by $204,000 during the year.
- Accounts payable to suppliers of merchandise decreased by $330,000 during the year.
- Accrued expenses payable decreased by $144,000 during the year.
- Administrative expenses include depreciation expense of $72,000.
Instructions: Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2027, for Vantage SA, using the indirect method.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 7 — Statement of Cash Flows
Start from profit, then undo everything in it that was not cash. Add back non-cash charges such as depreciation and amortisation, remove gains and losses that belong to investing activities, and then adjust for the movement in each working-capital account. The reconciliation is finished only when the closing cash figure agrees with the balance sheet.
Common mistakes
- Getting the sign of a working-capital movement backwards — a rise in a current asset consumes cash, a rise in a current liability provides it.
- Leaving a gain on disposal inside operating cash flow as well as showing the full proceeds under investing, which counts it twice.
- Classifying the purchase of non-current assets as operating rather than investing.
IFRS vs US GAAP: IFRS permits interest and dividends paid to be shown as operating or financing; US GAAP fixes interest paid in operating.
Further readingDirect vs indirect method cash flow