Question

Accounts receivable resulting from sales to customers amounted to $40,000 and $31,000 at the beginning and end of the year, respectively. Net income reported on the income statement for the year was $120,000. 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_________.

Answer 1

Answer:

$129,000

Explanation:

The indirect method fir calculating cash flows generally starts with net income and then adds or subtracts depending on the non-cash revenue or expense accounts. I.e. it starts at the end and comes back.

In this case, we are starting with net income and we need to add or subtract the changes in accounts receivable. Since accounts receivable decreased during the year it means that more money was collected increasing the cash flow.

Cash flow = net income + change in accounts receivable = $120,000 + ($40,000 - $31,000) = $120,000 + $9,000 = $129,000