Question

19. Consider the same scenario as in the previous question: On March 31, 2015, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000 for previous purchases. During April 2015, Preston sells Cars devices with a sales price of $10,000 and a cost to Preston of $8,000. During April, Cars pays Preston $12,000 against the amount owed to Preston. If Preston had no other sales and records no other collections from customers during the month of April, the operating section of Preston's indirect method statement of cash flows for April will show the following de-accrual adjustments to net income: Subtract change in accounts receivable; add change in inventory Add change in accounts receivable; subtract change in inventory Add change in accounts receivable; add change in inventory Subtract change in accounts receivable; subtract change in inventory

Answer 1

Extract of Balance Sheet: Particulars Last Year Current Year Change Accounts Receivables $ 25,000 $ 23,000 $ (2,000) Inventories $ - $ (8,000) $ (8,000) When there is a decrease in Assets, it shall be treated as the cash Inflow. Because, the asset to that extent is treated as converted in cash. So, the treatment to the "Cash from operating activities section" in Balance Sheet is: Net Income Add/ (Less) : Changes in the Operating Assets Add: the Change in Accounts Receivables Add: the Change in Inventories Therefore, the answer is OPTION-C (Add the changes in Accounts Receivables; Add change in Inventory.