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ABC Company ended Year 1 with the following account balances: Cash 600, Common Stock 400, and Retained Earnings 200. The following transactions occurred during Year 2: Issued common stock for $19,000 cash. ABC borrowed an additional $11,000 from Chris Bank. 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 purchased land for $14,000. ABC used $3,000 in cash to make a partial payment on its accounts payable. ABC declared and paid a $200 dividend to the stockholders On December 31 ABC had accrued salaries of $4,000. What is the net cash flow from operating activities shown on the statement of cash flows for the year ending December 31, Year 2?

2 Answers

3 votes

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:

  1. Total cash collected from operating activities (cash revenues + collections from receivables): $1,000 + $6,000 = $7,000
  2. Cash paid for operating activities (partial payment on accounts payable): $3,000
  3. 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.

User Uomo
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5.1k points
5 votes

Answer:

The appropriate answer will be "$7000". Below is that there is the clarification provided.

Step-by-step explanation:

The given values are:

Revenue,

= 9000

Expense,

= 4000

The net profit will be:


Net \ profit = Revenue-expense

When we place the approximate values in position, we get


=9000-4000


=5000

Now,


Cash \ flow \ from \ operating \ activities= Net \ profit + Cash \ inflow \ from \ debtor - Cash \ expense - Cash \ paid \ to \ supplier


= 5000 + 6000 - 1000 - 3000


=7000

User Wangyuntao
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5.0k points