Question

Adjust net income of $351,000 for changes in operating assets and liabilities to arrive at net cash flows from operating activities.

Answer 1

To adjust net income for changes in operating assets and liabilities, you need to perform the indirect method of cash flow analysis and follow specific steps.

Step-by-step explanation:

To adjust net income for changes in operating assets and liabilities, you need to perform the indirect method of cash flow analysis. This method starts with net income and adjusts for non-cash expenses (like depreciation) and changes in operating assets and liabilities.

Here are the steps to arrive at net cash flows from operating activities:

1. Add back non-cash expenses, such as depreciation, to net income.
2. Adjust for changes in operating assets. For example, if accounts receivable increased during the period, subtract that increase from net income. Conversely, if accounts receivable decreased, add the decrease to net income.
3. Adjust for changes in operating liabilities. For example, if accounts payable increased during the period, add that increase to net income. Conversely, if accounts payable decreased, subtract the decrease from net income.
4. Sum up the adjustments to net income to arrive at net cash flows from operating activities.