Question

Revenue on account amounted to 4,600. Cash collections of accounts receivable amounted to 4,300. Cash paid for operating expenses was 3,300. The amount of employee salaries accrued at the end of the year was 1,100. What was the net cash flow from operating activities?

Answer 1

The net cash flow from operating activities is $1,000, calculated by subtracting the cash paid for operating expenses ($3,300) from the cash collections from accounts receivable ($4,300). Accrued salaries are not considered as they are non-cash until paid.

Step-by-step explanation:

To determine the net cash flow from operating activities, we need to adjust the revenue and expenses for cash effects. Firstly, the cash revenue or cash collected from customers would be the cash collections of accounts receivable which is $4,300. Even though revenue on the account was $4,600, this figure includes credit sales that have not yet been paid in cash. Secondly, cash paid for operating expenses is given as $3,300. Finally, we have to consider the accrued employee salaries at the end of the year which amounts to $1,100. This expense has been incurred but not paid in cash, and therefore it doesn't affect the current period's cash flow.

To calculate the net cash flow from operating activities, we perform the following calculation:

Net cash flow from operating activities = Cash collections from accounts receivable − Cash paid for operating expenses
= $4,300 − $3,300
= $1,000.

Note that accrued employee salaries are not considered since they do not affect the cash flow within this period; it is a non-cash expense until it's paid.