Question

Assume the perpetual inventory method is used. The company purchased $12,500 of merchandise on account under terms 2/10, n/30. The company returned $1,200 of merchandise to the supplier before payment was made. The liability was paid within the discount period. All of the merchandise purchased was sold for $18,800 cash. What is the net cash flow from operating activities as a result of the four transactions

Answer 1

Net cashflow from operating activities =$7,726

Step-by-step explanation:

The net cash flow from operating activities would be the sales revenue less net purchases.

The net purchases = total purchases - less the purchases returns

12,500 - 1,200 =11300

The amount due on the purchases less discount

The term 2/10, n/30 implies that the company would get a discount of 2% should it pay within 10 days other it would pay the gross amount due at later date but on or before the 30th day.

Payment due less discount = 98%× 11300 = 11,074

Net cashflow from operating activities = Net sales - purchases

=18,800 - 11,074 = 7,726

Net cashflow from operating activities =7,726