The Natural Company's cash balance at December 31, 2019, was $150,000. The following information was reported on the company's statement of cash flows for 2020:

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The Natural Company's Statement of Cash Flows would report Cash Flows from Operating Activities of:

Question

The Natural Company's cash balance at December 31, 2019, was $150,000. The following information was reported on the company's statement of cash flows for 2020:

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The Natural Company's Statement of Cash Flows would report Cash Flows from Operating Activities of:

Quizplus · Accepted Answer

Cash flows from operating activities are calculated by adjusting net income for non-cash expenses and changes in current assets and liabilities. The change in accounts receivable was an increase of $14,000, indicating that sales were made but not yet collected. The change in inventory was a decrease of $53,000, indicating that inventory was sold during the year. Accounts payable increased by $28,000, indicating that the company purchased goods on credit. Depreciation expense of $120,000 is a non-cash expense that is added back to net income. Therefore, the cash flows from operating activities can be calculated as follows: 
Net income + Depreciation expense - Increase in accounts receivable - Decrease in inventory + Increase in accounts payable 
$250,000 + $120,000 - $14,000 - (-$53,000) + $28,000 = $214,000.

The Natural Company's Cash Balance at December 31, 2019, Was