Question

Accounts receivable arising from sales to customers amounted to $40,000 and $55,000 at the beginning and end of the year, respectively. In addition, during the year equipment was purchased for $50,000 cash, accounts payable increased by $50,000, and net income was $180,000. Based upon this activity, the cash flows from operating activities to be reported on the statement of cash flows is Select one: a. $145,000. b. $165,000. c. $ 95,000. d. $195,000. e. $215,000.

Answer 1

Answer: The answer is e. $215,000.

Explanation: Based on the information provided in the question, see the cash flows statement below:

XYZ Cash Flows Statement

Net income                                                         $180,000

Increase in account receivable                           (15,000)

Increase in accounts payable                              50,000

Cash flows from operating activities             $215,000

• Note that the purchase of equipment of $50,000 cash would not be considered under cash flows from operating activities but would rather be considered under cash flows from investing activities.

• Increase in accounts receivable means outflow of cash while increase in accounts payable means non-payment of debt, that is, inflow of cash.

Answer 2

Answer:

e. $215,000.

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.

Increase in assets other than cash is an outflow, while the increase in liability is an inflow of cash.

The cash flows from operating activities to be reported on the statement of cash flows is

= -$15,000 + $50,000 +$180,000

= $215,000