Question

Pearl Corporation reported net income of $49,100 in 2020. Depreciation expense was $17,200. The following working capital accounts changed.

Accounts receivable $11,200 increase
Available-for-sale debt securities 16,900 increase
Inventory 7,300 increase
Nontrade note payable 14,400 decrease
Accounts payable 13,300 increase

Required:
Compute net cash provided by operating activities. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Answer 1

Net operating cash flow $68,300

Step-by-step explanation:

Operating cash flow is the amount of cash generated by a company from its main and normal business activity. This cash flow is useful to gauge the financial viability of a firm's business activity; the larger the better.

It is essentially computed as the net movement of cash inflow and outflow in respect of a business activities.

It is computed as follows:

$

Net income 49,000

Add deprecation 17,200

Less increase in receivable (11.200)

add increase in payables 13,300

Net operating cash flow 68,300

Note that only items that relate to trading which is the core business area of the Pearl Corporation are considered. Depreciation is added because it is a non-cash item initially deducted from net income.

An increase in receivable means a reduction in cash while an increase in payables implies cash savings

Net operating cash flow $68,300