Question

Zaire Company had a $26,000 net loss from operations. Depreciation expense for the year was $9,600, and a dividend of $2,000 was declared and paid. The balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

End Beginning
Cash $3,500 $7,000
Accounts receivable 16,000 27,000
Inventory 51,000 53,000
Prepaid expenses 5,000 9,000
Accounts payable 12,000 8,000
Accrued liabilities 6,000 7,600
Required :
1. Did Zaire Company's operating activities provide or use cash? Use the indirect method to determine your answer. Use negative signs with cash outflow answers and to indicate operating activities used cash, if applicable.

Answer 1

$3,000

Step-by-step explanation:

Cash provided by operating activities:

= Net Loss + Depreciation + Decrease in accounts receivable + Decrease in inventory + Decrease in prepaid expenses + Increase in accounts payable - Decrease in accrued liability

= - $26,000 + $9,600 + $11,000 + $2,000 + $4,000 + $4,000 - $1,600

= $3,000

Therefore, cash used by the operating activities is $3,000.