Accounts receivable arising from sales to customers amounted to ¥350,000 and ¥400,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was ¥1,800,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is
A) ¥1,800,000.
B) ¥1,850,000.
C) ¥2,150,000.
D) ¥1,750,000.

Question

Quizplus · Accepted Answer

The cash flows from operating activities can be calculated using the indirect method. We start with net income, which is ¥1,800,000, and adjust for non-cash expenses such as depreciation and changes in operating assets and liabilities including accounts receivable.

The increase in accounts receivable from ¥350,000 to ¥400,000 means that the company collected less cash from customers than it sold on credit during the year. This decrease in cash inflow should be subtracted from net income.

Cash flows from operating activities = Net income + Non-cash expenses - Increase in accounts receivable
Cash flows from operating activities = ¥1,800,000 + Non-cash expenses - (¥400,000 - ¥350,000)
Cash flows from operating activities = ¥1,800,000 + Non-cash expenses - ¥50,000

Since there is no information about other adjustments, we assume they have no effect on operating cash flows. Therefore, the answer is D) ¥1,750,000.

Accounts Receivable Arising from Sales to Customers Amounted to ¥350,000