Question

Company AA had net income of $20,000 in 2017. Compared to previous year, Accounts Receivable decreased by $10,000, Prepaid Rent increased by $1,000, Accounts Payable decreased by $1,000. Finally, their depreciation for 2017 was recorded as $5,000. Compute net cash provided by operating activities.

Answer 1

Answer: The net cash provided by operating activities is $33,000.

Explanation: The amount above was arrived at by computing the following:

Company AA

Statement of Cash Flows for the Year 2017

Net income                                                            $20,000

Add depreciation:                                                      5,000

Decrease in Accounts receivable                           10,000

Increase in Prepaid rent                                           (1,000)

Decrease in Accounts payable                                (1,000)

Net cash flows from operating activities            $33,000

Please note the following:

• Depreciation was added back because it is non-cash item
• Decrease in accounts receivable represents cash inflow
• Increase in prepaid rent represents an outflow of cash
• Decrease in accounts payable represents cash outflow