Question

Miguel, Inc. reported net income of $2.5 million in 2022. Depreciation for the year was $160,000, accounts receivable decreased $350,000, and accounts payable decreased $280,000. Compute net cash provided by operating activities using the indirect approach.

Answer 1

To calculate the net cash provided by operating activities using the indirect approach, start with the net income and make adjustments for non-cash expenses, changes in working capital, and other operating items which is $2.59 million.

Step-by-step explanation:

To calculate the net cash provided by operating activities using the indirect approach, we start with the net income and make adjustments for non-cash expenses, changes in working capital, and other operating items. In this case, we have:

• Net income: $2.5 million
• Depreciation: $160,000 (added back)
• Decrease in accounts receivable: $350,000 (added back)
• Decrease in accounts payable: $280,000 (subtracted)

Using these numbers, we can calculate the net cash provided by operating activities as follows:

Net cash provided by operating activities = Net income + Depreciation - Increase in accounts receivable + Increase in accounts payable

= $2.5 million + $160,000 - $350,000 + $280,000

= $2.59 million.

Answer 2

$2,730,000

Step-by-step explanation:

The opening cash balance is netted off the cash flows from all activities namely; Operating, investing and financing activities to get the closing cash balance.

The operating activities includes elements such as net income, depreciation and amortization, changes in working capital etc.

Given;

Net income = $2,500,000

Depreciation = $160,000

accounts receivable decrease = $350,000 (inflow of cash)

accounts payable decrease = $280,000 (outflow of cash)

net cash provided by operating activities using the indirect approach

= $2,500,000 + $160,000 + $350,000 - $280,000

= $2,730,000