Patricio Co. reported $10,000 cash used in the operating activities section of the Statement of Cash Flows and the following data: depreciation expense $10,000; an accounts payable increase of $12,000; a $3,000 decrease in accounts receivable; an increase in wages payable of $8,000; and a $15,000 gain on the sale of long-term investments. Patricio Co.'s net income/loss for the period was

Question

Quizplus · Accepted Answer

The cash provided by operating activities is calculated by starting with net income and making adjustments for non-cash items and changes in current assets and liabilities. 
Starting with the reported cash used in operating activities of $10,000, we can make adjustments for the identified items:

- Depreciation expense is a non-cash item and should be added back: +$10,000 
- An increase in accounts payable means that the company received goods or services and did not pay for them in cash, resulting in a decrease in the cash flow: -$12,000 
- A decrease in accounts receivable means that the company collected cash from customers for sales that were previously reported as revenue but not yet collected: +$3,000 
- An increase in wages payable means that the company accrued (or recorded) wages expense but did not pay them in cash, resulting in a decrease in the cash flow: -$8,000 
- A gain on the sale of long-term investments is a non-operating item and is not included in the operating activities section of the statement of cash flows.

Therefore, the calculation for net income/loss is: 
Cash provided by operating activities = net income - non-cash items + changes in current assets and liabilities 
$10,000 = net income - $10,000 + $3,000 - $12,000 - $8,000 
Net income/loss = -$28,000