Using the following information for an accounting period and the indirect method, calculate the net cash from operating activities:Profit $480 000Accounts receivable decreased by $19 000Inventory increased by $22 000Depreciation expense $32 000Prepaid insurance increased $3 200Input your answer belowWhen entering amounts, use whole numbers only - no spaces, no dollar signs, no full stops, no dots, no decimal separators, no symbols, no special characters, e.g., enter $2,000 as 2000
Question
Using the following information for an accounting period and the indirect method, calculate the net cash from operating activities:Profit 19 000Inventory increased by 32 000Prepaid insurance increased 2,000 as 2000
Solution
To calculate the net cash from operating activities using the indirect method, follow these steps:
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Start with the net income (profit), which is $480,000.
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Adjust for changes in current assets and current liabilities. If a current asset (like accounts receivable or inventory) increases, subtract the increase. If it decreases, add the decrease. If a current liability increases, add the increase. If it decreases, subtract the decrease. In this case, accounts receivable decreased by 22,000 (subtract this). Prepaid insurance, another current asset, increased by $3,200 (subtract this).
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Add back non-cash expenses, like depreciation. In this case, add the depreciation expense of $32,000.
So, the calculation would be:
$480,000 (profit)
- $19,000 (decrease in accounts receivable)
- $22,000 (increase in inventory)
- $3,200 (increase in prepaid insurance)
- $32,000 (depreciation expense)
This gives a net cash from operating activities of $505,800.
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