Aaron Inc. reported operating expenses during 2015 of $765,000 (including $80,000 of depreciation expense). Prepaid expenses increased $25,000 while accrued liabilities increased $43,000. How much cash was paid for operating expenses during 2015?

Question

Quizplus · Accepted Answer

To find the cash paid for operating expenses, adjust the reported operating expenses for changes in prepaid expenses and accrued liabilities. Start with the reported operating expenses of $765,000, subtract the increase in prepaid expenses of $25,000 (since this represents cash paid but not yet expensed), and subtract the increase in accrued liabilities of $43,000 (since this represents expenses incurred but not yet paid). Therefore, the cash paid for operating expenses is $765,000 - $25,000 - $43,000 = $697,000. However, since depreciation is a non-cash expense, it should be added back: $697,000 + $80,000 = $667,000.

Aaron Inc Reported Operating Expenses During 2015 of $765,000 (Including $80,000