Final answer:
To calculate the net cash flow from operating activities for ABC Company, we account for cash collected from revenues and receivables, deduct cash paid for operating expenses, and omit non-operating and accrued items. The resulting net cash flow from operating activities for Year 2 is $4,000.
Step-by-step explanation:
To calculate the net cash flow from operating activities for ABC Company, we must consider only the transactions that affect the operating activities, as per the indirect method of preparing a statement of cash flows. The components of operating activities will include revenues, operating expenses, and changes in working capital (accounts receivables and accounts payables) but not the effects of investing and financing activities.
Here are the relevant transactions that impact operating cash flows:
- ABC earned $9,000 of revenue on account.
- ABC incurred $4,000 of operating expenses on account.
- Cash collections of accounts receivables were $6,000.
- ABC provided additional services to customers for $1,000 cash.
- ABC used $3,000 in cash to make a partial payment on its accounts payable.
- On December 31, ABC had accrued salaries of $4,000.
We'll start by adding the cash revenues ($1,000 from services provided) to the cash collected from receivables ($6,000), which gives us a total of $7,000. Then, we subtract the cash paid for expenses, which includes the partial payment on accounts payable ($3,000), but exclude the accrued salaries because they have not resulted in a cash outflow this year. The revenue earned on account and expenses incurred on account do not affect cash flow because cash has not been received or paid. The dividend payment of $200 and other investing, and financing activities are also excluded from the operating activities calculation.
The calculation is as follows:
- Total cash collected from operating activities (cash revenues + collections from receivables): $1,000 + $6,000 = $7,000
- Cash paid for operating activities (partial payment on accounts payable): $3,000
- Net cash flow from operating activities: $7,000 (collected) - $3,000 (paid) = $4,000
In summary, the net cash flow from operating activities for XYZ Company for Year 2 is $4,000.