Question

A company had net income of $210000. Depreciation expense is $27000. During the year, Accounts Receivable and Inventory increased $17000 and $42000, respectively. Prepaid Expenses and Accounts Payable decreased $5000 and $6000, respectively. There was also a loss on the sale of equipment of $2000. How much cash was provided by operating activities?

$179000

$241000

$271000

$175000

Answer 1

Correct Answer is $179000
Particulars	Amount
Net Income	$       2,10,000
Add : Depreciation expense	$           27,000
Add : Loss on sale of equipment	$             2,000
Add : Decrese in prepaid expenses	$             5,000
Less : Decrease in accounts payable	$             6,000
Less : Increse in accounts receivable	$           17,000
Less :Increase in inventory	$           42,000
Cash provided by operating activities	$       1,79,000
Note 1 : Depreciation & loss on sale of equipment are added back to net income to
arrive at cash flow from operating activities.
Note 2 : Points to note in changes in working capital while preparing Cash flow statement . If balance of a current asset increases ,cash flow from operations will decrease. If balance of a current asset decreases , cash flow from operations will increase. If balance of current liability increases, cash flow from operations will increase. If balance of a current liability decreases, cash flow from operations will decrease.