Question

Suppose Lightspeed Industries has the following results related to cash flows for 2019:

Net Income of $8,800,000
Increase in Accounts Payable of $900,000
Decrease in Accounts Receivable of $300,000
Depreciation of $1,700,000
Increase in Inventory of $400,000
Other Adjustments from Operating Activities of $800,000

Assuming no other cash flow adjustments than those listed above, create a statement of cash flows with amounts in thousands.

What is the Net Cash Flow from Operating Activities?

Answer 1

In calculating the cash flows from operating activities from indirect method, we will start with the net income. We will add back the non cash item of depreciation in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted.

Statement of cash flows (Partial): in '000s

Description	Amount	Amount
Operating activities:	'000	'000
Net income	$8800
Adjustments to reconcile net income to net cash from operating activities
Add:Depreciation expense	$1700
Add: Increase in accounts payable	$900
Add: Decrease in accounts receivable	$300
Less: Increase in inventory	($400)
Net cash flows from operating activities		$11300