Shouldn’t the Account’s payable be a decrease?

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  • March 4, 2015 at 12:11 pm #192478
    CPA – Hopeful
    Participant

    NINJA Question –

    Lino Co.’s worksheet for the preparation of its statement of cash flows included the following:

    December 31 January 1

    Accounts receivable $29,000 $23,000

    Allowance for uncollectible accounts 1,000 800

    Prepaid rent expense 8,200 12,400

    Accounts payable 22,400 25,400

    Lino’s net income is $150,000. What amount should Lino include as net cash provided by operating activ­ities in the statement of cash flows?

    Correct A.

    $151,400

    B.

    $151,000

    C.

    $148,600

    D.

    $145,400

Viewing 8 replies - 1 through 8 (of 8 total)
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  • March 4, 2015 at 12:14 pm #649626
    nika_cpa
    Member

    No, you have to add to Net Income increase in AP because you accounted for these expenses in your net income, however, you didn't pay your suppliers in cash. So for Cash Flow purposes you add this amount back.

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    March 4, 2015 at 12:18 pm #649627
    CPA – Hopeful
    Participant

    Okay but if the A/P was 25400 at Jan 1 and 22400 at Dec 31 wouldn't that be a decrease and so cash would have gone out to pay for the supplies?

    March 4, 2015 at 1:49 pm #649628
    nika_cpa
    Member

    oh I didn't see your dates. Yes, that would be decrease.

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    March 4, 2015 at 2:02 pm #649629
    greg422
    Member

    Yes i thought this question was wrong in NINJA when I was studying

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    March 4, 2015 at 2:41 pm #649630
    san4596
    Member

    I believe this question has been posted multiple times before. They were supposed to correct it, but it appears not.

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    March 4, 2015 at 4:04 pm #649631
    Anonymous
    Inactive

    Similar question in Becker w/ explanation.

    I still don't really get it…

    https://i.imgur.com/WS0FEoW.png?1

    March 4, 2015 at 6:07 pm #649632
    kleon52
    Member

    A = L + SE

    other assets + Cash = L + SE

    Cash = L + SE – OA

    DCash = DL + DSE – DOA

    D = Change in

    Accrual to Cash =

    DL + DSE – DOA

    Cash to Accrual =

    -DL – DSE + DOA

    For your problem we are going from cash to accrual

    60k -(-DL) + (+OA)

    60k – (-15k) + (+20k) = 95k

    Note: The cash to acrual and acrual to cash formulas above reverse the + & – when calculating expenses

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    March 4, 2015 at 6:42 pm #649633
    Anonymous
    Inactive

    @kleon52 – Thank you for those formulas, I know I have seen that before but I definitely need to have that in my notes.

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