Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $150,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is
A) $150,000.
B) $155,000.
C) $185,000.
D) $145,000.

Question

Quizplus · Accepted Answer

The cash flows from operating activities can be calculated using the indirect method by adjusting the net income for changes in non-cash current assets and liabilities. In this case, we need to adjust for the increase in accounts receivable from $35,000 to $40,000.

The change in accounts receivable is an increase of $5,000 ($40,000 - $35,000), which means that sales were made but the cash was not yet received. Therefore, we need to deduct this increase from net income, as it represents a use of cash.

150,000 - 5,000 = $145,000

Therefore, the cash flows from operating activities to be reported on the statement of cash flows is $145,000.

Accounts Receivable Arising from Sales to Customers Amounted to $35,000