A company had net income of ¥2,400,000. Depreciation expense is ¥260,000. During the year, Accounts Receivable and Inventory increased ¥150,000 and ¥400,000, respectively. Prepaid Expenses and Accounts Payable decreased ¥20,000 and ¥40,000, respectively. There was also a loss on the sale of equipment of ¥30,000. How much cash was provided by operating activities?
A) ¥2,060,000
B) ¥2,120,000
C) ¥2,960,000
D) ¥3,080,000

Question

Quizplus · Accepted Answer

Cash provided by operating activities can be calculated using the indirect method of the statement of cash flows. Starting with net income, we add back non-cash expenses such as depreciation, and then adjust for changes in operating assets and liabilities.

Net Income: ¥2,400,000
Add back Depreciation: ¥260,000
Add increase in Accounts Receivable: ¥150,000
Add increase in Inventory: ¥400,000
Subtract decrease in Prepaid Expenses: ¥20,000
Subtract decrease in Accounts Payable: ¥40,000
Add Loss on Sale of Equipment: ¥30,000

Cash provided by operating activities: ¥2,120,000

A Company Had Net Income of ¥2,400,000