Fina's Faucets, Inc. has net cash flows from operating activities for the last year of $17 million. The income statement shows that net income is $15 million and depreciation expense is $6 million. During the year, the change in inventory on the balance sheet was an increase of $4 million, change in accrued wages and taxes was an increase of $1 million and change in accounts payable was an increase of $1 million. At the beginning of the year the balance of accounts receivable was $5 million. What was the end of year balance for accounts receivable?
A) $2 million
B) $3 million
C) $7 million
D) $9 million

Question

Quizplus · Accepted Answer

The net cash flow from operating activities is calculated as net income plus depreciation minus changes in working capital. The change in accounts receivable can be found by rearranging the cash flow equation: $17 million = $15 million + $6 million - ($4 million - $1 million - $1 million + change in accounts receivable). Solving for the change in accounts receivable gives a decrease of $2 million, so the end of year balance is $5 million - $2 million = $3 million.