Rachel's Recordings reported net income of $200,000.Beginning balances in Accounts Receivable and Accounts Payable were $15,000 and $20,000,respectively.Ending balances in these accounts were $12,000 and $22,000,respectively.Assuming that all relevant information has been presented,Rachel's cash flows from operating activities would be:
A)$200,000.
B)$195,000.
C)$205,000.
D)$199,000.

Question

Quizplus · Accepted Answer

To calculate cash flows from operating activities using the indirect method, we need to adjust for changes in accounts receivable and accounts payable.

Net Income = $200,000
Adjustments for changes in accounts receivable: 
Beginning Accounts Receivable - Ending Accounts Receivable = $15,000 - $12,000 = $3,000 (decrease in Accounts Receivable means cash was received)
Adjusted Net Income = $200,000 + $3,000 = $203,000
Adjustments for changes in accounts payable: 
Beginning Accounts Payable - Ending Accounts Payable = $20,000 - $22,000 = $2,000 (increase in Accounts Payable means cash was paid)
Operating Cash Flows = Adjusted Net Income - Adjustments for changes in accounts receivable + Adjustments for changes in accounts payable
Operating Cash Flows = $203,000 - $3,000 + $2,000 = $205,000

Therefore, the best choice is C: $205,000.

Rachel's Recordings Reported Net Income of $200,000