During the year, ABC Ltd received $50,000 from its customers, $5,000 for the sale of a motor vehicle and $20,000 for the issue of shares. It paid $27,000 to suppliers and employees, $3,000 for income tax and $50,000 for new machinery. Its cash balance at the beginning of the year was $30,000. What were the net cash flows from operating activities? a. $20,000 b. $25,000 c. $50,000 d. $23,000
Question
During the year, ABC Ltd received 5,000 for the sale of a motor vehicle and 27,000 to suppliers and employees, 50,000 for new machinery. Its cash balance at the beginning of the year was $30,000. What were the net cash flows from operating activities?
a. $20,000
b. $25,000
c. $50,000
d. $23,000
Solution
To calculate the net cash flows from operating activities, we need to consider the cash inflows and outflows related to the company's core business operations.
Here are the steps:
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Identify the cash inflows from operating activities: ABC Ltd received $50,000 from its customers. This is the only operating cash inflow.
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Identify the cash outflows from operating activities: ABC Ltd paid 3,000 for income tax. These are the operating cash outflows.
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Subtract the total cash outflows from the total cash inflows to get the net cash flows from operating activities: 27,000 (cash outflows to suppliers and employees) - 20,000.
So, the net cash flows from operating activities is 20,000.
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