Sage Corporation’s comparative balance sheet for currentassets and liabilities w

Question

Sage Corporation’s comparative balance sheet for currentassets and liabilities was as follows : Dec. 31, 2007 Dec. 31, 2008 Accounts receivable 12,000 14,000 Inventory 9,000 6,500 Accounts payable 8,500 7,200 Dividends payable 24,000 26,000 Adjust net income of $110,000 for changes in operating assetsand liabilities to arrive at cash flows from operatingactivities.
Thanks for your help! Sage Corporation’s comparative balance sheet for currentassets and liabilities was as follows : Dec. 31, 2007 Dec. 31, 2008 Accounts receivable 12,000 14,000 Inventory 9,000 6,500 Accounts payable 8,500 7,200 Dividends payable 24,000 26,000 Adjust net income of $110,000 for changes in operating assetsand liabilities to arrive at cash flows from operatingactivities. Dec. 31, 2007 Dec. 31, 2008 Accounts receivable 12,000 14,000 Inventory 9,000 6,500 Accounts payable 8,500 7,200 Dividends payable 24,000 26,000 Adjust net income of $110,000 for changes in operating assetsand liabilities to arrive at cash flows from operatingactivities. Dec. 31, 2007 Dec. 31, 2008 Accounts receivable 12,000 14,000 Inventory 9,000 6,500 Accounts payable 8,500 7,200 Dividends payable 24,000 26,000 Adjust net income of $110,000 for changes in operating assetsand liabilities to arrive at cash flows from operatingactivities.

Explanation / Answer

NetIncome                                              110,000 Decrease in A/R           2,000 Increase inInventory                    (2,500) Increase in A/P       1,300 Decrease in Dividends payable      (2,000)           1,200 Net cash flow from operatingactivities              111,200 Note Decrease in A/R means the customer paid the company the $ owed.This payment increases the cash flow and so add it back to your netincome. All current assets behaves the same way. Increase inc.assets behaves the opposite. Increase in A/P is the business is using someone's money and isgood for the cash flow. So add it back. Decrease in a liability isthe cash is gone out of the company and subtract it from the netincome.

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