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Fallon Corporation reports net income of $370,000. Accounts Receivable balances at the beginning and end of...

Fallon Corporation reports net income of $370,000. Accounts Receivable balances at the beginning and end of the year were $40,000 and $48,000, respectively. Beginning and ending Inventory balances were $60,000 and $54,000, respectively. What is the company’s cash inflows from operating activities?

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Answer #1
Cash flow from operating activity means cash that is being generated or used due to the operation of the company. i.e. any cash which is being used or received due to the working of the company is cash flow from operating activity. It is calculated as follows:
Net Income: $370,000
Add:
Decrease in Inventory 6000 ($ 60000-54000)
Less:
Increase in Accounts Receivables -8000 ( $ 40000-48000)
Cash flow from operating activity $368,000
Note:
1. Decrease in inventory should be added because it indicate that inventory has been sold and cash is being received from the sale. Hence it’s a inflow.
2. Increase in Accounts receivable reflects that organization is not able to convert accounts receivable into cash and hence, it’s a out flow.
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