The net income reported on the income statement for the current year was ¥2,250,000.Depreciation recorded on plant assets was ¥380,000.Accounts receivable and inventories increased by ¥20,000 and ¥80,000, respectively.Prepaid expenses and accounts payable decreased by ¥10,000 and ¥110,000 respectively.How much cash was provided by operating activities?

Question

Quizplus · Accepted Answer

The cash provided by operating activities can be calculated using the indirect method of the statement of cash flows. 
Starting with net income of ¥2,250,000, we add back depreciation of ¥380,000, which is a non-cash expense. 
Then, we adjust for the changes in working capital. 
Accounts receivable increased by ¥20,000, meaning less cash was received than was recognized as revenue. Subtracting ¥20,000 from net income gives ¥2,230,000. 
Inventories increased by ¥80,000, meaning cash was used to purchase more inventory. Subtracting ¥80,000 from ¥2,230,000 gives ¥2,150,000. 
Prepaid expenses decreased by ¥10,000, meaning cash was used to pay for previously prepaid expenses. Adding ¥10,000 to ¥2,150,000 gives ¥2,160,000. 
Accounts payable decreased by ¥110,000, meaning more cash was used to pay off obligations than was recognized as expenses. Adding ¥110,000 to ¥2,160,000 gives ¥2,270,000. 
Therefore, the cash provided by operating activities is ¥2,270,000, which is closest to option B (¥2,430,000).

The Net Income Reported on the Income Statement for the Current