Accounts receivable from sales transactions were $51,000 at the beginning of the year and $64,000 at the end of the year. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method is
A) $105,000
B) $118,000
C) $92,000
D) $169,000

Question

Quizplus · Accepted Answer

The change in accounts receivable during the year was $13,000 ($64,000 - $51,000). Since an increase in accounts receivable represents a use of cash, this amount needs to be subtracted from net income to arrive at the cash flows from operating activities. Therefore, cash flows from operating activities = Net income - Increase in accounts receivable = $105,000 - $13,000 = $92,000. Option C is the closest amount to this. Option A is incorrect as it does not take into account the increase in accounts receivable. Option B is incorrect as it includes the increase in accounts receivable twice. Option D is incorrect as it includes other adjustments not mentioned in the question.

Accounts Receivable from Sales Transactions Were $51,000 at the Beginning