Accounts Receivable amounted to $215,000 at the beginning of the year and $245,000 at the end of the year.Income reported on the income statement for the year was $300,000.The cash flow from operating activities on the cash flow statement using the indirect method is:
A)$300,000.
B)$330,000.
C)$270,000.
D)None of these answers are correct.

Question

Quizplus · Accepted Answer

The cash flow from operating activities using the indirect method is calculated by adjusting net income for any non-cash expenses or gains/losses and changes in current assets and liabilities.

Starting with net income of $300,000, we need to make adjustments for the increase in accounts receivable from $215,000 to $245,000.

Since accounts receivable went up, this means cash wasn't collected from all customers who bought on credit during the year. So, we subtract the increase in accounts receivable from net income to arrive at cash flow from operating activities:

$300,000 - ($245,000 - $215,000) = $270,000

Therefore, the answer is C) $270,000.

Accounts Receivable Amounted to $215,000 at the Beginning of the Year