Balances of the current asset and current liability accounts at the end and beginning of the year are as follows:

End of the year	Beginning of the year
Cash	$62,000	 	$73,000
Accounts receivable (net)	75,000	 	60,000
Inventories	54,000	 	47,000
Accounts payable (merchandise creditors)	43,000	 	37,000
Salaries payable	2,800	 	3,800
Sales (on account)	210,000
Cost of goods sold	70,000
Operating expenses other than depreciation	67,000

Use the direct method to prepare the “Cash flows from (used for) operating activities” section of a statement of cash flows. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

To prepare the "Cash flows from (used for) operating activities" section using the direct method, we need to compute the cash flows associated with each of the operating activities: cash received from customers, cash payments to suppliers, cash payments for operating expenses, and cash payments for salaries. 

### 1. Cash Received from Customers
This is based on sales and the change in accounts receivable:

\[
\text{Cash Received from Customers} = \text{Sales on Account} + \text{Decrease in Accounts Receivable}
\]
\[
= 210,000 + (60,000 - 75,000)
\]
\[
= 210,000 - 15,000
\]
\[
= 195,000
\]

### 2. Cash Payments to Suppliers
This is based on the cost of goods sold and changes in inventory and accounts payable:

\[
\text{Cash Payments to Suppliers} = \text{Cost of Goods Sold} + \left(\text{Increase in Inventory}\right) - \left(\text{Increase in Accounts Payable}\right)
\]
\[
= 70,000 + (54,000 - 47,000) - (43,000 - 37,000)
\]
\[
= 70,000 + 7,000 - 6,000
\]
\[
= 71,000
\]

### 3. Cash Payments for Operating Expenses
This includes the operating expenses other than depreciation, adjusted for changes in salaries payable:

\[
\text{Cash Payments for Operating Expenses} = \text{Operating Expenses} + \left(\text{Decrease in Salaries Payable}\right)
\]
\[
= 67,000 + (3,800 - 2,800)
\]
\[
= 67,000 + 1,000
\]
\[
= 68,000
\]

### 4. Summary of Cash Flows from Operating Activities (Direct Method)
- **Cash Received from Customers:** $195,000
- **Cash Payments to Suppliers:** $-71,000$
- **Cash Payments for Operating Expenses:** $-68,000$

\[
\text{Net Cash Flow from Operating Activities} = 195,000 - 71,000 - 68,000 = 56,000
\]

Thus, the "Cash flows from (used for) operating activities" section of the statement of cash flows is:

\[
\begin{aligned}
\text{Cash flows from (used for) operating activities:} \\
\text{Cash received from customers} & = \$195,000 \\
\text{Cash payments to suppliers} & = \text{-}\$71,000 \\
\text{Cash payments for operating expenses} & = \text{-}\$68,000 \\
\text{Net Cash Flow from Operating Activities} & = \$56,000 \\
\end{aligned}
\]

Would you like further details or have any questions about the calculation?

---

Here are 8 follow-up questions:
1. How would the indirect method differ from the direct method in this context?
2. What is the importance of cash flow from operating activities in financial analysis?
3. How would a change in inventory affect cash flow calculations?
4. What happens if accounts payable increase significantly more than expected?
5. How do depreciation and amortization affect cash flow in the direct method?
6. Can cash flow from operating activities be negative? What does it imply?
7. How would a company improve its cash flow from operating activities?
8. Why is the direct method less commonly used than the indirect method in practice?

**Tip:** Understanding the difference between cash flow and net income is crucial. Cash flow measures actual cash in and out, while net income includes non-cash items like depreciation.

Learn how to calculate the cash flows from operating activities using the direct method with detailed examples. Understand the impact of sales, accounts receivable, inventory, accounts payable, and operating expenses on cash flows. Includes step-by-step calculations for cash received from customers, cash payments to suppliers, and cash payments for operating expenses.

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