Sable Island Ltd. is a private company reporting under ASPE. Its income statement contained the following condensed information

Year Ended December 31, 2017

Operating activities

Cash receipts from customers $911,750 (1)

Cash payments

For operating expenses $(639,500) (2)

For interest (4,550) (3)

For income tax (61,750) (4) (705,800)

Net cash provided by operating activities $205,950

Calculations:

(1) Cash receipts from customers

Fees earned $900,000

Add: Decrease in accounts receivable $ 8,000

Add: Increase in unearned revenue 3,750 11,750

Cash receipts from customers $911,750

(2) Cash payments for operating expenses

Operating expenses $642,000

Add: Increase in prepaid expenses 2,500

Less: Increase in accounts payable (5,000)

Cash payments for operating expenses $639,500

(3) Cash payments for interest expense

Interest expense $5,000

Less: Increase in interest payable (450)

Cash payments for income tax $4,550

(4) Cash payments for income tax

Income tax expense $56,500

Add: Decrease in income tax payable 5,250

Cash payments for income tax $61,750

Taking It Further:

The indirect method of preparing the operating activities section focuses on the differences between profit and net cash flow from operating activities. It is also easier to prepare than the direct method and provides fewer details to the company’s competitors. It is usually considered less meaningful to users than the direct method since it does not show the specific cash receipts and payments related to operations.