Question

Mary's Music Store reported net income of $135,000. Beginning balances in Accounts Receivable and Accounts Payable were $29,000 and $26,000, respectively. Ending balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Mary's net cash flows from operating activities would be:

Answer 1

Answer:

$132,000

Explanation:

Cash flow from operating activities is derived from the net income of a business. It is calculated as net income plus accounts payable (inflow) and less accounts receivable (outflow).

Net flow from accounts payable= 24,000 - 26,000= -$2,000

Net flow from accounts receivable= 30,000 - 29,000= $1,000

Cash flow from operations= Net income + Accounts payable - Accounts Receivable

Cash flow from operations= 135,000 +(-2,000) - 1,000

Cash flow from operations= 135,000 - 2,000 - 1,000

Cash flow from operations= $132,000

Answer 2

Answer:

$132,000

Explanation:

The cash flow statement categories the company's transactions in a financial period into 3 groups; these are operating, investing and financing.

The net profit/loss, depreciation, changes in current assets (other than cash) and liabilities are considered as operating activities including income taxes.  

The sale of assets, interest received, purchase of investments are examples of investing activities while the issuance of stocks, debt principal deduction (loan settlement), issuance of debt securities etc are examples of financing activities.

An increase in assets other than cash is an outflow while an increase in liabilities is an inflow. Depreciation and other non-cash expenses deducted in the income statements are added back while the non-cash income such gain on asset are deducted from net income.

Increase in accounts receivable = $30,000 - $29,000

= $1,000

Decrease in Accounts payable = $24,000 - $26,000

= ($2,000)

Hence net cash flows from operating activities

= $135,000 - $1,000 - $2,000

= $132,000