A company had net income of ¥2,100,000.Depreciation expense is ¥260,000.During the year, Accounts Receivable and Inventory increased ¥150,000 and ¥400,000, respectively.Prepaid Expenses and Accounts Payable decreased ¥20,000 and ¥40,000, respectively.There was also a loss on the sale of equipment of ¥30,000.How much cash was provided by operating activities?

Question

Quizplus · Accepted Answer

Starting with the net income of ¥2,100,000, we add back depreciation of ¥260,000. Then, we adjust for changes in working capital by subtracting the increase in Accounts Receivable (¥150,000), adding the increase in Inventory (¥400,000), subtracting the decrease in Prepaid Expenses (¥20,000), and adding the decrease in Accounts Payable (¥40,000). Lastly, we subtract the loss on the sale of equipment (¥30,000). 
¥2,100,000 + ¥260,000 - ¥150,000 + ¥400,000 - ¥20,000 - ¥40,000 - ¥30,000 = ¥1,820,000. Therefore, the cash provided by operating activities is ¥1,820,000, which is option B.

A Company Had Net Income of ¥2,100,000