Problem - 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.