Laser World's income statement reported total revenues,$850,000 and total expenses (including $40,000 depreciation)of $720,000.The balance sheet reported the following: Accounts Receivable-beginning balance,$50,000 and ending balance,$60,000;Accounts Payable-beginning balance,$22,000 and ending balance,$28,000.Therefore,based only on this information,the net cash flows from operating activities were:

Question

Quizplus · Accepted Answer

To calculate net cash flows from operating activities, we need to start with net income and make adjustments for non-cash expenses (like depreciation) and changes in working capital accounts (like accounts receivable and accounts payable).

Starting with the income statement, we can find net income:

Total revenues: $850,000 
Total expenses: $720,000 
Depreciation: $40,000

Net income: $850,000 - $720,000 - $40,000 = $90,000

Next, we need to adjust for changes in working capital accounts:

Accounts receivable: 
Beginning balance: $50,000 
Ending balance: $60,000 
Change: $10,000 increase

Accounts payable: 
Beginning balance: $22,000 
Ending balance: $28,000 
Change: $6,000 increase

To calculate net cash flows from operating activities, we use the following formula:

Net income + non-cash expenses - change in accounts receivable + change in accounts payable

$90,000 + $40,000 - $10,000 + $6,000 = $126,000

Therefore, the net cash flows from operating activities were $126,000.

Laser World's Income Statement Reported Total Revenues,$850,000 and Total Expenses