Question

Accounts receivable from sales to customers amounted to $40,000 and $32,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $110,000.
1. Exclusive of the effect of other adjustments, the net cash flows from operating activities to be reported on the statement of cash flows using the indirect method is ________.
a. $110,000b. $102,000c. $118,000d. $150,000

Answer 1

Answer:

Therefore, the correct option is c) $118,000

Explanation:

Calculating the Cash flows from Operating activities:

Net income - Increase in Accounts receivables = Cash flows from Operating activities

Net income + Decrease in Accounts receivables = Cash flows from Operating activities

The Beginning accounts receivables is $40,000

Ending accounts receivables is $32,000

Therefore, there is a decrease in accounts receivables ($40,000 - $32,000) = $8,000

This decrease in accounts receivables should be added to net income to arrive at cash flows from Operating activities.

$110,000 + $8,000 = $118,000

Therefore, the correct option is c) $118,000

Credit memo show the bank has collected a note receivable for the customer.