In: Accounting
Give an example of a company that reports positive accrual-basis net income but at the same time shows negative cash flows from operating activities.
Service Revenue: $ 25,000, out of
which $ 15,000 received in cash.
Rent Expenses: $ 9,000, out of which $ 5,000 is paid in cash [$
4,000 outstanding]
Insurance expense: $ 12,000 all paid in cash.
Now, Income Statement will look like this:
Service Revenue |
$ 25,000.00 |
Expenses: |
|
Rent Expenses |
$ 9,000.00 |
Insurance Expenses |
$ 12,000.00 |
Total expenses |
$ 21,000.00 |
Net Income |
$ 4,000.00 |
Also, the Statement of Cash Flows (Operating Activities) will look like this:
Cash Flows from Operating Activities: |
|
Cash Collected from customers |
$ 15,000.00 |
Cash paid for Rent |
$ (5,000.00) |
Cash paid for Insurance |
$ (12,000.00) |
Net Cash from Operating Activities |
$ (2,000.00) |