Calculating Cash Flow from Operating Activities
What are the components involved in calculating cash flow from operating activities?
Net income of $209800, Depreciation expense of $26500, Changes in Accounts Receivable and Inventory, Changes in Prepaid Expenses and Accounts Payable, and Loss on the sale of equipment.
Answer
Cash flow from Operating Activities was $2,000.
Calculating cash flow from operating activities involves analyzing various components that affect the cash generated by a company's core operations. These components include:
1. Net Income: The net income of $209800 represents the profit generated by the company after deducting all expenses.
2. Depreciation Expense: Depreciation expense of $26500 is a non-cash item that is added back to the net income as it doesn't involve any actual cash outflow.
3. Changes in Working Capital: Changes in working capital include adjustments for changes in Accounts Receivable and Inventory. In this case, Accounts Receivable increased by $16700, and Inventory increased by $41500, resulting in a decrease in cash flow.
4. Changes in Prepaid Expenses and Accounts Payable: Prepaid Expenses decreased by $4500, and Accounts Payable decreased by $5500, affecting the cash flow from operating activities.
5. Loss on Sale of Equipment: The loss on the sale of equipment of $1900 is deducted from the net income as it represents a reduction in cash flow.
After considering all these components and adjustments, the cash flow from Operating Activities is calculated to be $2,000.