CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I
For the year, a company reports net income of 500, including a gain on sale of equipment of 30 and depreciation of 80. Accounts receivable increased by 40, inventory decreased by 20, and accounts payable decreased by 10. Cash flow from operations under the indirect method is closest to:
Operating cash flow is about 520. Start with net income of 500, add depreciation of 80, subtract the 30 gain (an investing item), subtract the 40 receivables increase, add the 20 inventory decrease and subtract the 10 payables decrease.
- A500
- B520Correct
- C610
Explanation
500 + 80 depreciation - 30 gain - 40 receivables + 20 inventory - 10 payables = 520. The sale proceeds belong in investing activities. The 610 distractor omits the gain subtraction and working capital items and ignores signs: 500 + 80 + 30.
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