WXY reported sales revenue of $40,000 and expenses of $35,000 during the period ended December 31, 2011. During the year, accounts receivable increased by $1,500; merchandise inventory increased by $1,000; accounts payable increased by $500; dividends payable decreased by $700; and depreciation expense of $2,500 was recorded. What was the amount of net cash flow from operating activities?

Question

Quizplus · Accepted Answer

To calculate the net cash flow from operating activities, start with the net income, which is sales revenue minus expenses ($40,000 - $35,000 = $5,000). Adjust this for changes in working capital and non-cash expenses. The increase in accounts receivable ($1,500) and inventory ($1,000) are uses of cash, while the increase in accounts payable ($500) is a source of cash. The decrease in dividends payable ($700) does not affect operating activities. Add back the non-cash depreciation expense ($2,500). The net adjustments are: -$1,500 (AR) - $1,000 (Inventory) + $500 (AP) + $2,500 (Depreciation) = $500. Therefore, the net cash flow from operating activities is $5,000 (Net Income) + $500 (Net adjustments) = $5,500.

WXY Reported Sales Revenue of $40,000 and Expenses of $35,000