Question

Assuming Net Income for the year is $115,000, what is the net operating cash flows given the following information: Increase in Salaries Payable $15,000 Depreciation Expense $6,000 Increase in Prepaid Rent $24,000 Loss on sale of asset $1,000 Increase in Accounts Payable $25,000 Increase in Inventory $50,000

Answer 1

Answer:

Operating Cash flows refer to those that have to do with the day to day management of the business and result from the business's normal operations.

Increases in money owed are added to the balance as it means more money stayed with the company.

Increases in assets are deducted as it means money was spent on acquiring them.

Depreciation is added back as it is a non cash expense so also is the loss on sale of asset.

Net Operating Income $115,000

Add back:

Depreciation $6,000

Loss on sale of asset $1,000

Add:

Increase in Salaries Payable $15,000

Increase in Accounts Payable $25,000

Less:

Increase in Prepaid Rent ($24,000)

Increase in Inventory ($50,000)

Net Operating Cash-flows $88,000