Question

Use the direct method to determine the net cash provided by operating activities.

Answer 1

In order to calculate cash flows we must before adding the net cash from investment and financing activities to determine the company's net cash rise or reduction for that time period, the cash outflows and inflows are deducted to determine the net cash flow from operational operations.

Operating activities' net cash flow: $337,500

$700,000 in earnings before income taxes.

Vendor payments in cash: (525,000)

Customer cash taken in: $1,500,000

How do you figure out the cash that operating activities provide?

Flow of Cash from Operations

Net Income plus Non-Cash Items plus Changes in Working Capital equals Cash Flow from Operations.

• Step 1: Take the net income from the income statement to begin calculating operational cash flow.

• Add back all non-cash items in step two.

• Adjust for variations in working capital in step three.

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