How do we calculate the net cash from operating activities for the Car production company with the provided accounting information?
Calculating Net Cash from Operating Activities Using Indirect Method
Net Cash from Operating Activities: $91,000
To calculate the net cash from operating activities using the indirect method for the Car production company, we follow these steps:
1. Start with the net income:
- Net income: $95,000
2. Adjust for non-cash expenses:
- Add back depreciation expense: $110,000
3. Adjust for changes in working capital:
- Subtract the decrease in accounts receivable: $45,000
- Add the decrease in accounts payable: $120,000
- Subtract the decrease in taxes payable: $40,000
4. Consider any gains or losses:
- Add the loss on a disposal: $1,000
5. Sum up the adjustments:
($110,000 + $45,000 - $120,000 - $40,000 + $1,000) = $-4,000
6. Add the adjustments to the net income:
($95,000 + $-4,000) = $91,000
Therefore, the net cash from operating activities for the Car production company using the indirect method is $91,000.
Analysis of Net Cash from Operating Activities
The net cash from operating activities of $91,000 indicates that the Car production company generated $91,000 in cash from its core operations. This figure takes into account the adjustments made for non-cash expenses, changes in working capital, and gains/losses.
By utilizing the indirect method, we gain valuable insights into the cash flow generated by the company's day-to-day operations. This information is crucial for assessing the financial health and performance of the Car production company.