First National Eatery prepares its statement of cash flows using the indirect method. The statement reported that cash provided by operating activities for the year was $7,000. If the company experienced a $14,000 decrease in accounts receivable, a $13,000 decrease in accounts payable, and a $4,000 increase in inventory during the year, how much is the company's net income/(loss) for the year?

Question

Quizplus · Accepted Answer

The operating activities section of the statement of cash flows using the indirect method starts with net income and then makes adjustments for non-cash transactions and changes in current assets and liabilities.

To calculate net income, we need to work backwards from the provided cash provided by operating activities of $7,000 and adjust for the changes in accounts receivable, accounts payable, and inventory.

Starting with cash provided by operating activities:

Cash provided by operating activities = net income + non-cash transactions + changes in current assets and liabilities

$7,000 = net income + non-cash transactions + (-$14,000 + $13,000 + $4,000)

$7,000 = net income - $3,000

Net income = $10,000

Therefore, the answer is (D) $10,000.

First National Eatery Prepares Its Statement of Cash Flows Using