Question

What is the net cash flow from operating activities?

can someone explain how to calculate and what the result would be?

Increase in account receivable: 70,000

Increase in salaries payable: 57,500

Decrease in inventory: 32,000

Depreciation expense: 48,500

Increase in prepaid insurance: 3,800

Answer 1

Cash from operating activities means cash inflows and outflows from a company's main business activities of buying and selling goods, services, etc.

1) Increase in account receivable: 70,000 will be subtracted from cash flow from operating activities as accounts receivable means sales made in credit and cash will be received in future.

2) Increase in salaries payable: 57,500 will be added in cash flow from operating activities as salary payable is current liability which means cash is yet to be paid.

3) Decrease in inventory: 32,000 will be added to cash flow from operating activities as decrease in inventory means sale of stock which means inflow of cash

4) Depreciation expense: 48,500 will be added to cash flow from operating activities as depreciation is a non cash expense which indicates that there is no cash outflow of cash, hence added back

5) Increase in prepaid insurance: 3,800 will be subtracted from cash flow from operating activities as prepaid insurance payment mens outflow of cash, hense substracted.

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