Dec. 31, 2008 Dec. 31, 2007 Accounts receivable 12,000 14,000 Inventory 9,000 6,
ID: 2444384 • Letter: D
Question
Dec. 31, 2008
Dec. 31, 2007
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, 2008
Dec. 31, 2007
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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