Accounting: 1,001 Practice Problems For Dummies
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To calculate the amount of cash provided by a company's operating activities, you need to consider net income, accounts payable, and accounts receivable. The following practice questions provide two different scenarios and ask you to add up the cash from operating activities.

Practice questions

  1. During a year, a company reports a net income of $20,000 and an accounts payable increase of $5,000. No other operating assets or liabilities changed. How much was cash provided by operating activities?

  2. During a year, a company reports a net income of $50,000, an accounts receivable increase of $5,000, and an accounts payable decrease of $2,000. How much was cash provided by operating activities?

Answers and explanations

  1. $25,000

    The increase in accounts payable must be added to net income to calculate cash from operating activities. Thus, the net income of $20,000 plus the increase in accounts payable of $5,000 equals $25,000 of cash provided by operating activities.

  2. $43,000

    The increase in accounts receivable and the decrease in accounts payable must be deducted from net income. Therefore, the net income of $50,000 less the increase in accounts receivable of $5,000 less the decrease in accounts payable of $2,000 equals $43,000 of cash provided by operating activities.

If you need more practice on this and other topics from your accounting course, visit Dummies.com to purchase Accounting For Dummies! Featuring the latest information on accounting methods and standards, the information in Accounting For Dummies is valuable for anyone studying or working in the fields of accounting or finance.

About This Article

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About the book authors:

Kenneth Boyd is the owner of St. Louis Test Preparation (www.stltest.net). He provides online tutoring in accounting and finance. Kenneth has worked as a CPA, Auditor, Tax Preparer, and College Professor. He is the author of CPA Exam For Dummies. Kate Mooney has been teaching accounting to both undergraduates and MBA students at St. Cloud State University since 1986, after earning her PhD from Texas A & M University. She is a licensed CPA in Minnesota and is a member of the State Board of Accountancy.

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