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Explain why the company was able to report positive

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Reference no: EM13583661

A company completed its income statement and balance sheet for the year and provided the following information:

 

                                                                Income Statement

 

                                Service Revenue                                                 $55,000

                                Expenses:

                                                Salaries                                                   42,500

                                                Rent                                                          7,200

                                                Depreciation                                              6,800

                                                Amortization of copyrights                         1,000

                                Total Expenses                                                          57,500

                                Net loss                                                                     $(2,500)

 

                                                                Partial Balance Sheet

                                                                                                                Current Year      Prior Year

                                Accounts receivable                                                     $ 7,000                  $16,000

                                Salaries Payable                                                          14,000                      7,200

                                Prepaid rent                                                                  2,200                      8,400

 

In addition, the company bought a small piece of equipment costing $6,500.

 

Required:

  1. Prepare the operating activities section of the statement of cash flows using the indirect method.
  2. Explain why the company was able to report positive operating cash flow despite having a net loss for the year.

 

Reference no: EM13583661

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