The following income statement was drawn from the annual report of Newtown Company:
$\begin{array}{|c|c|}
\hline \text { Cash revenue } & \$ 30,000 \
\hline \text { Depreciation expense } & (10,000) \
\hline \text { Accrued interest expense } & (3,000) \
\hline \text { Cash operating expenses } & (12,000) \
\hline \text { Operating income } & 5,000 \
\hline \text { Gain on sale of equipment } & 600 \
\hline \text { Net Income } & \underline{\$ 5,600} \
\hline
\end{array}$
What is the net cash flow from operating activities?

Question

The following income statement was drawn from the annual report of Newtown Company:
$\begin{array}{|c|c|}
\hline \text { Cash revenue } & \$ 30,000 \
\hline \text { Depreciation expense } & (10,000) \
\hline \text { Accrued interest expense } & (3,000) \
\hline \text { Cash operating expenses } & (12,000) \
\hline \text { Operating income } & 5,000 \
\hline \text { Gain on sale of equipment } & 600 \
\hline \text { Net Income } & \underline{\$ 5,600} \
\hline
\end{array}$ 
What is the net cash flow from operating activities?

Quizplus · Accepted Answer

Net cash flow from operating activities is calculated by adjusting net income for non-cash expenses and changes in working capital. Starting with net income of $5,600, add back non-cash depreciation expense of $10,000, resulting in $15,600. Then, add back the accrued interest expense of $3,000 (since it is not a cash outflow), resulting in $18,600. However, the gain on sale of equipment is not part of operating activities, so the correct net cash flow from operating activities is $18,000.

The Following Income Statement Was Drawn from the Annual Report