Question

Accounts receivable from sales to customers amounted to $40,000 and $32,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $110,000. Exclusive of the effect of other adjustments, the net cash flows from operating activities to be reported on the statement of cash flows using the indirect method is
a. $118,000
b. $150,000
c. $102,000
d. $110,000

Answer 1

Answer:

a. $118,000

Explanation:

When preparing a cash flow statement, using indirect method we add decrease in current assets and we deduct increase in current assets.

Here it is provided that income reported = $110,000

Opening balance of accounts receivables = $40,000

Closing balance of accounts Receivables = $32,000

Change in Accounts receivables = Closing - Opening = $32,000 - $40,000 = - $8,000

Therefore there is decrease in accounts receivables which is a current asset.

Thus Cash Flow from operating activities

Net Income = $110,000

Add: Decrease in current assets = $8,000

Net cash flow from operating activity = $118,000

Correct option is

a. $118,000