Question

Sweet Acacia Industries reported net income of $1.40 million in 2022. Depreciation for the year was $224,000, accounts receivable decreased $490,000, and accounts payable decreased $392,000.

Required:

Compute net cash provided by operating activities using the indirect approach.

Answer 1

Net Cash flow from operating = $ 1,722,000

Step-by-step explanation:

To determine the net cash flow from operating activities. We will adjust the net income as follows; all decrease in assets and increase in liabilities are added and all increase in assets and decrease in liabilities are subtracted.

All non- cash expenses would be added back and all non-cash income would be deducted from the net income. Notable here is depreciation a non-cash expense which must be added back to the net income

This principle is applied below:

$

Net Income 1,400,000

Adjustments:

Add depreciation expense 224,000

Add decrease in current asset 490,000

less decrease in current liabilities (392,000)

Net Cash flow from operating 1,722,000

Net Cash flow from operating = $ 1,722,000