Question

Revenue on account amounted to 3,000. Cash collections of accounts receivable amounted in 2,000. Cash paid for expenses amounted to 2,500. Cash flow from operating activities is-

1)200
2)300
3) 500
4) 3300

Answer 1

Cash flow from operating activities is calculated by subtracting cash expenses from cash collections, which in this case is $2,000 - $2,500 = $$500. Therefore, the cash flow from operating activities is a negative $500.

Step-by-step explanation:

To calculate the cash flow from operating activities, we need to consider the cash transactions related to normal business operations such as cash collections from customers and cash payments for expenses. In this case, we have the following elements:

• Revenue on account (credit sales) which is $3,000. However, this does not affect the cash flow since it is not collected yet.
• Cash collections of accounts receivable which is $2,000. This represents cash inflow.
• Cash paid for expenses which is $2,500. This represents cash outflow.

Therefore, the cash flow from operating activities is calculated as:

Cash collections - Cash expenses = $2,000 - $2,500 = $$500

So, the correct answer is $500 negative, since more cash was paid out than was collected.