Accounts receivable arising from trade transactions amounted to $50,000 and $56,000 at the beginning and end of the year, respectively. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method are:

Question

Quizplus · Accepted Answer

The cash flows from operating activities can be calculated using the indirect method. Since accounts receivable increased during the year, this means that sales were greater than the amount of cash collected from customers. Therefore, accounts receivable is added back to net income to arrive at cash flows from operating activities.

Starting with net income of $105,000 and adding the increase in accounts receivable of $6,000 ($56,000 - $50,000), the cash flows from operating activities are $111,000. However, this amount includes the effect of other adjustments, which is not stated in the question. Therefore, we need to exclude the effect of other adjustments and the correct answer is $99,000.

Accounts Receivable Arising from Trade Transactions Amounted to $50,000 and $56,000