Bird Brain Co. reported net income of $45,000 for the year ended December 31, 2013. January 1 balances in accounts receivable and accounts payable were $23,000 and $26,000 respectively. Year-end balances in these accounts were $22,000 and $28,000, respectively. Assuming that all relevant information has been presented, Bird Brain's cash flows from operating activities would be:
A)$48,000.
B)$44,000.
C)$46,000.
D)$45,000.

Question

Quizplus · Accepted Answer

The cash flows from operating activities are calculated by adjusting net income for changes in working capital. The decrease in accounts receivable ($23,000 - $22,000 = $1,000) indicates an increase in cash flow, while the increase in accounts payable ($28,000 - $26,000 = $2,000) also indicates an increase in cash flow. Therefore, the cash flow from operating activities is $45,000 (net income) + $1,000 (decrease in accounts receivable) + $2,000 (increase in accounts payable) = $48,000.