Question

During Year 6, Kincaid, Inc. earned $85,000 of cash revenue. The company incurs all operating expenses on account. The Year 6 beginning balance in Kincaid's accounts payable account was $2,000, while the ending balance was $25,000. The Company made cash payments of $40,000 to reduce accounts payable during Year 6.a. Based on the information provided, determine the amount of operating expenses recognized during the accounting period.b. Based on the information provided, determine the amount of net income earned during the accounting period.c. Based on the information provided, determine the amount of cash flow from operating activities.

Answer 1

Answer:

a.  Amount of operating expenses recognized during the accounting period = Account payable closing balance + Cash payment - Opening balance

= $25,000 + $40,000 - $2,000

= $63,000

b.  Net income earned during the accounting period = Cash revenue - Amount of operating expenses recognized

=  $85,000 - $63,000

= $22,000

C.  Amount of cash flow from operating activities =  Net income + Increase in current liability  

= $22,000 + ($25,000 - $2,000)

= $45,000