Question

adjust net income of $124,500 for changes in operating assets and liabilities to arrive at net cash flows from operating activities?

Answer 1

To adjust net income of $124,500 for changes in operating assets and liabilities to arrive at net cash flows from operating activities, you need to use the indirect method of calculating cash flows. Follow the step-by-step process of adding back non-cash expenses and adjusting for changes in operating assets and liabilities.

Step-by-step explanation:

To adjust net income of $124,500 for changes in operating assets and liabilities to arrive at net cash flows from operating activities, you will need to use the indirect method of calculating cash flows from operating activities. This method starts with net income and adjusts it for non-cash items, such as changes in operating assets and liabilities.

Here's a step-by-step process to calculate net cash flows from operating activities:

1. Start with net income of $124,500.
2. Add back non-cash expenses, such as depreciation and amortization.
3. Adjust for changes in operating assets and liabilities by comparing the current period's balances with the previous period's balances. For example, if accounts receivable increased by $10,000, subtract $10,000 from net income. If accounts payable decreased by $5,000, add $5,000 to net income.
4. Continue adjusting for changes in other operating assets and liabilities, such as inventory, prepaid expenses, and accrued liabilities.
5. Once all adjustments are made, you will arrive at net cash flows from operating activities.

In this case, if you have the necessary information about changes in operating assets and liabilities, you can follow this process to adjust net income of $124,500 and calculate the net cash flows from operating activities.