Accounts receivable from sales transactions were $51,000 at the beginning of the year and $64,000 at the end of the year. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method would be
A) $105,000
B) $118,000
C) $92,000
D) $169,000

Question

Quizplus · Accepted Answer

To calculate cash flows from operating activities using the indirect method, we start with net income and make adjustments for non-cash transactions and changes in current assets and liabilities.

One of the adjustments we need to make is for the change in accounts receivable. In this case, accounts receivable increased by $13,000 ($64,000 - $51,000), which means that cash was not received from customers for $13,000 of the sales made during the year.

To account for this, we need to subtract $13,000 from net income.

Operating cash flows = Net income - Increase in accounts receivable
Operating cash flows = $105,000 - $13,000
Operating cash flows = $92,000

Therefore, the correct answer is C) $92,000.

Accounts Receivable from Sales Transactions Were $51,000 at the Beginning