The Knott Company reported depreciation expense of $10,000 and net income of $16,000 on its income statement.During the year,the company's accounts receivable balance decreased by $4,000.Based on this information,what was the net cash flow from operating activities?
A) $12,000.
B) $16,000.
C) $32,000.
D) $30,000.

Question

Quizplus · Accepted Answer

To calculate the net cash flow from operating activities using the indirect method, we start with net income and make adjustments for non-cash expenses and changes in current assets and liabilities (such as accounts receivable).

Net income: $16,000 
Add back depreciation: +$10,000

Since the accounts receivable balance decreased by $4,000, this means that cash was received from customers who had previously owed the company. Therefore, we add back $4,000 to the net income and depreciation:

Add decrease in accounts receivable: +$4,000

Net cash flow from operating activities: $30,000 ($16,000 + $10,000 + $4,000)

The Knott Company Reported Depreciation Expense of $10,000 and Net