[Ralphie Dos Nachos]

In this problem, they include the increase in allowance for uncollectible accounts yet in another problem they didn’t. when do you include allowance for uncollectible accounts in the cash flow statement? because I looked up online that it is not included.

Lino Co.’s worksheet for the preparation of its statement of cash flows included the following:

December 31 January 1
Accounts receivable $29,000 $23,000
Allowance for uncollectible accounts 1,000 800
Prepaid rent expense 8,200 12,400
Accounts payable 22,400 19,400

Lino’s net income is $150,000. What amount should Lino include as net cash provided by operating activ­ities in the statement of cash flows?

A.$151,400

B.$151,000

C.$148,600

D.$145,400

The $151,400 amount is calculated as follows:

Net income $150,000
Increase in accounts receivable ($23,000 – $29,000) (6,000)
Increase in allowance for uncollectible accounts
($800 – $1,000) 200
Decrease in prepaid rent expense ($12,400 – $8,200) 4,200
Increase in accounts payable ($22,400 – $19,400) 3,000
———
Cash provided by operating activities $151,400

[Anonymous]

+150,000 +NI
-5,800 -AR ↑
+4,200 +Prepaid Rent Exp ↓
+3,000 +AP ↓
————————–
=151,400
==========================

Shouldn't we net AR or AP to compute for SCF using indirect method?

[CoachEmUp]

If allowance for uncollectible is given to you then you'll want to net it against what they have in A/R. Think of it this way: We're trying to convert our accrual basis ledger into a cash basis for the SOCF. So if they have an allowance for uncollectible accounts we need to reverse that out because it is used in the given net income figure.

ΔCash = ΔLiabilities + ΔOwner's Equity – ΔOther Assets

So any increase in assets that isn't cash for the year we'll want to subtract, any decrease (such as prepaid expenses in this problem) we'll want to add. Hope this helps!

[Author]

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