Question

Chisholm Associates uses the indirect method to prepare the operating activities section of the statement of cash flows. The following accounts and balances were drawn from the company's accounting records: Beg. Bal. End. Bal. Accounts receivable $ 32,100 $ 42,550 Prepaid insurance 6,700 3,550 Accounts payable 26,100 28,350 Unearned revenue 8,500 6,350 Net income for the period was $65,500. What is the net cash flows from operating activities?

Answer 1

Answer:

$58100

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.

An increase in an asset other than cash is an outflow of cash while an increase in liabilities is an inflow of cash. A decrease in an asset other than cash is an inflow of cash while an decrease in liabilities is an outflow of cash.

Change in

Accounts receivable = $ 42,550 - $ 32,100=

 = $10450   (Asset)

Prepaid insurance = 3,550 - 6,700

= -$3150  (Asset)

Accounts payable = 28,350 - 26,100  

= $2250  (liability)

Unearned revenue = 6,350 - 8,500

= -$2150  (liability)

The net cash flows from operating activities

= $65,500 - $10450  + $3150  - $2250  + $2150

= $58100