Accounts receivable from sales to customers amounted to $40,000 and $32,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $110,000. 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
A) $118,000
B) $110,000
C) $102,000
D) $150,000

Question

Quizplus · Accepted Answer

The net cash flows from operating activities can be calculated by adjusting the income reported on the income statement for changes in working capital accounts, such as accounts receivable. Here, accounts receivable decreased by $8,000 ($40,000 - $32,000) during the year, which means that cash collected was greater than the revenue recognized, thus this decrease should be added back to the income. Therefore, the net cash flows from operating activities is $110,000 (income) + $8,000 (decrease in accounts receivable) = $118,000.

Accounts Receivable from Sales to Customers Amounted to $40,000 and $32,000