Question

The comparative balance sheets for Blossom Company show these changes in noncash current asset accounts: accounts receivable decreased $90,000, prepaid expenses increased $38,000, and inventories increased $50,000. Compute net cash provided by operating activities using the indirect method, assuming that net income is $196,000. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Answer:

Cash provided by operating activities is $198,000

Explanation:

Net Income $196,000

Decrease in receivable will increase the cash as more customers have paid than the new credit given in the period.

Increase in prepaid expense will decrease the cash balance as there more cash paid in advance against expenses than before.

Increase in inventory will increase the inventory cost and cash is paid against these expenses. More inventory means more cash outflow.

Decrease in receivable will be added and Increase in Prepaid expenses and Inventory will be deducted from operating cash flow calculation.

Cash provided by operating activities = Net Income + accounts receivable decreased - prepaid expenses increased - inventories increased

Cash provided by operating activities = $196,000 + $90,000 - $38,000 - $50,000

Cash provided by operating activities = $198,000