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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 of a statement of cash flows using the direct method, we need to follow these steps:

### 1. **Calculate Cash Received from Customers:**
   - **Sales (on account):** $210,000
   - **Accounts Receivable:**
     - Beginning Balance: $60,000
     - Ending Balance: $75,000

   **Change in Accounts Receivable:**
   \[
   \text{Increase in Accounts Receivable} = 75,000 - 60,000 = 15,000
   \]

   When accounts receivable increase, it means less cash was collected than the amount of sales recorded. Therefore, the cash received from customers is:
   \[
   \text{Cash Received from Customers} = 210,000 - 15,000 = 195,000
   \]

### 2. **Calculate Cash Payments to Suppliers:**
   - **Cost of Goods Sold (COGS):** $70,000
   - **Inventories:**
     - Beginning Balance: $47,000
     - Ending Balance: $54,000

   **Change in Inventories:**
   \[
   \text{Increase in Inventories} = 54,000 - 47,000 = 7,000
   \]

   - **Accounts Payable:**
     - Beginning Balance: $37,000
     - Ending Balance: $43,000

   **Change in Accounts Payable:**
   \[
   \text{Increase in Accounts Payable} = 43,000 - 37,000 = 6,000
   \]

   The cash payments to suppliers can be calculated as:
   \[
   \text{Cash Payments to Suppliers} = 70,000 + 7,000 - 6,000 = 71,000
   \]

### 3. **Calculate Cash Payments for Operating Expenses:**
   - **Operating Expenses other than Depreciation:** $67,000
   - **Salaries Payable:**
     - Beginning Balance: $3,800
     - Ending Balance: $2,800

   **Change in Salaries Payable:**
   \[
   \text{Decrease in Salaries Payable} = 3,800 - 2,800 = 1,000
   \]

   When salaries payable decreases, it means more cash was paid out. Therefore, the cash payments for operating expenses are:
   \[
   \text{Cash Payments for Operating Expenses} = 67,000 + 1,000 = 68,000
   \]

### 4. **Calculate Net Cash Flows from Operating Activities:**

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

### **Final Cash Flows from Operating Activities Section:**
```plaintext
Cash Flows from Operating Activities:
   Cash received from customers: $195,000
   Cash payments to suppliers: $(71,000)
   Cash payments for operating expenses: $(68,000)
------------------------------------------
Net cash provided by operating activities: $56,000
```

This section shows that the company had a net cash inflow of $56,000 from its operating activities for the year.

Would you like more details or have any questions? Here are some related questions to consider:

1. How would changes in depreciation affect cash flows using the indirect method?
2. What is the difference between the direct and indirect methods for cash flow?
3. How are non-cash transactions treated in cash flow statements?
4. What role does working capital play in cash flow analysis?
5. How does the cash flow statement interact with the income statement and balance sheet?
6. What are the implications of a negative cash flow from operating activities?
7. Can a company still be profitable with negative cash flows from operations?
8. How would dividends affect the cash flow statement?

**Tip:** Understanding how cash flow statements connect with other financial statements is key to analyzing a company's financial health.

Learn how to prepare the “Cash flows from (used for) operating activities” section of a statement of cash flows using the direct method. Follow a detailed step-by-step solution based on provided financial data.

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