Question

Baxter Company reported a net loss of $17,915 for the year ended December 31. During the year, accounts receivable decreased by $5,094, inventory increased by $8,342, accounts payable increased by $15,567, and depreciation expense of $6,823 was recorded. During the year, operating activities

a. used net cash of $17,915

b. used net cash of $1,227

c. provided net cash of $17,915

d. provided net cash of $1,227

Answer 1

The correct answer is d. provided net cash of $1,227.

The net loss of $17,915 is an outflow of cash, which means that it used net cash. However, the other changes listed in the question are also changes that affected net cash, and they had the opposite effect of the net loss.

The decrease in accounts receivable of $5,094 is an inflow of cash because it represents a reduction in the amount of money that the company is owed. The increase in inventory of $8,342 is an outflow of cash because it represents an increase in the amount of money that the company has invested in inventory. The increase in accounts payable of $15,567 is an inflow of cash because it represents a reduction in the amount of money that the company owes to its creditors. The recording of depreciation expense of $6,823 is an outflow of cash because it represents a non-cash expense.

When you consider all of these changes together, you can see that the net effect on cash was an inflow of $1,227. Therefore, the correct answer is d. provided net cash of $1,227.