Suppose Ruston Company has the following results related to cash flows for 2022:

Question:
Suppose Ruston Company has the following results related to cash flows for 2022:
Net Income of $6,700,000
Increase in Accounts Payable of $300,000
Decrease in Accounts Receivable of $500,000
Increase in Inventory of $800,000

Assuming no other cash flow adjustments than those listed above, create a statement of cash flows with
amounts in thousands.

What is the Net Cash Flow from Operating Activities?

Answer:
The calculation step-by-step for the Operating Activities section of the statement of cash flows for
Ruston Company for the year 2022:




2. Adjustments for Non-Cash Items:

Decrease in Accounts Receivable:
A decrease in accounts receivable means the company collected less than the sales it recognized in the
income statement, leading to an increase in cash.
The decrease in accounts receivable of $500,000 means cash increased by this amount.

So, we add back this decrease to the net income: +$500.

Increase in Inventory:
An increase in inventory means the company spent cash to purchase additional inventory but did not
recognize the full expense in the income statement since it's recorded as an asset.
The increase in inventory of $800,000 represents cash outflow for inventory purchases.

Thus, we subtract this increase in inventory to adjust for the non-cash impact on net income: -$800.