Shaw Associates uses the indirect method for preparing the statement of cash flows. The following accounts and balances were drawn from the company's accounting records: Net income for the period was $42,000. The net cash flows from operating activities equals:
$$\begin{array} { | l | r r | r r | }
\hline \text { Account Title } &{ \text { Begining } } &&{ \text { Ending } } \
\hline \text { Accounts receivable } & \$ & 30,000 & \$ & 40,000 \
\hline \text { Prepaid insurance } & \$ & 4,600 & \$ & 1,000 \
\hline \text { Accounts payable } & \$ & 24,000 & \$ & 25,800 \
\hline \text { Unearned revenue } & \$ & 6,400 & \$ & 3,800 \
\hline
\end{array}$$
A)$37,200.
B)$34,800.
C)$49,200.
D)$40,000.

Question

Shaw Associates uses the indirect method for preparing the statement of cash flows. The following accounts and balances were drawn from the company's accounting records: Net income for the period was $42,000. The net cash flows from operating activities equals:
$$\begin{array} { | l | r r | r r | } 
\hline \text { Account Title } &{ \text { Begining } } &&{ \text { Ending } } \
\hline \text { Accounts receivable } & \$ & 30,000 & \$ & 40,000 \
\hline \text { Prepaid insurance } & \$ & 4,600 & \$ & 1,000 \
\hline \text { Accounts payable } & \$ & 24,000 & \$ & 25,800 \
\hline \text { Unearned revenue } & \$ & 6,400 & \$ & 3,800 \
\hline
\end{array}$$
A)$37,200.
B)$34,800.
C)$49,200.
D)$40,000.

Quizplus · Accepted Answer

The net cash flows from operating activities is calculated by adjusting net income for changes in working capital accounts. Increase in accounts receivable ($10,000) is subtracted, decrease in prepaid insurance ($3,600) is added, increase in accounts payable ($1,800) is added, and decrease in unearned revenue ($2,600) is subtracted. Net cash flow = $42,000 - $10,000 + $3,600 + $1,800 - $2,600 = $34,800.

Shaw Associates Uses the Indirect Method for Preparing the Statement