Laser World reports net income of $490,000. Depreciation expense is $34,000, accounts receivable increases $11,000, and accounts payable decreases $14,000. Calculate net cash flows from operating activities using the indirect method. (List cash outflows and any decrease in cash as negative amounts.)

The net cash flows from operating activities using the indirect method is $499,000

Explanation:

In order to calculate the net cash flows from operating activities using the indirect method we would have to make the following calculation:

net cash flows from operating activities=cash flows from operating activities+Adjustments to reconcile net income to net cash flows from operating activities

net cash flows from operating activities=net income+(Depreciation expense-accounts receivable increases-accounts payable decreases

net cash flows from operating activities=$490,000 + ($34,000-$11,000-$14,000)

net cash flows from operating activities=$499,000

The net cash flows from operating activities using the indirect method is $499,000

Net cash flows from operating activities is $499,000

Explanation:

Cash Flow from operating activities cash generated from to day to day activities of the business. All the cash flows needed to operate the business smoothly.

Cash flows from operating activities

Net Income                                                    $490,000

Add: Non cash Expense Adjustments:

Depreciation                                                  $34,000

Change in Working Capital:

Increase in accounts receivable $(11,000)

Decrease in accounts payable   $(14,000)

Less: Net Change in WC                               $(25,000)

Net Operating Cash flow                              $499,000

Depreciation is a non cash expense which was deducted from the income while calculating the net income value, it needs to be added back.

Increase in the receivable means the customers are paying less than the credit sales are being made. It uses the cash so, it will be adjusted as a deduction in net cash flow calculation.

Decrease in the payable means the suppliers are being paid more than the credit purchases are being made. It also uses the cash so, it will be adjusted as a deduction in net cash flow calculation.

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