Question

38.

Rachel's Recordings reported net income of $220,000. Beginning balances in Accounts Receivable and Accounts Payable were $19,000 and $22,000 respectively. Ending balances in these accounts were $8,500 and $27,000, respectively. Assuming that all relevant information has been presented, Rachel's net cash flows from operating activities would be:

Answer 1

Calculation of cash flows from Operating activities:

Net income Reported : $ 220,000

Movement in Accounts Receivable (AR) : $ 10,500

( $ 19,000 - $ 8,500 ) (Refer Note 1)

Movement in Accounts Payable (AP) : $ 5,000

( $ 22,000 - 27,000) (Refer Note 2)

_____________

Cash Flow from Operating activities : $ 235,500

Note 1: AR has been reduced which means that Rachel has received money from her AR so there would be cash inflow.

Note 2: AP balance has been increase which means that Rachel has not paid the amount so that would also be treated as Cash inflow.

Note 3: Assuming that there are no other transactions relevant in cash flows from operating activities since only accounts receivable and accounts payable movement provided in question.