Flynn Company reported a net loss of $40,000 for the year ended December 31, 2014. During the year, accounts receivable decreased $20,000, inventory increased $32,000, accounts payable increased by $40,000, and depreciation expense of $20,000 was recorded. During 2014, operating activities
A) used net cash of $8,000.
B) used net cash of $32,000.
C) provided net cash of $8,000.
D) provided net cash of $32,000.

Question

Quizplus · Accepted Answer

The net cash provided by operating activities is calculated by adjusting the net loss for changes in working capital and non-cash expenses. Starting with a net loss of $40,000, add back depreciation of $20,000 (a non-cash expense), add the decrease in accounts receivable of $20,000, subtract the increase in inventory of $32,000, and add the increase in accounts payable of $40,000. The net effect is an $8,000 increase in cash.

Flynn Company Reported a Net Loss of $40,000 for the Year