A company's income statement showed the following: net income, $128,000; depreciation expense, $37,000; and gain on sale of plant assets, $11,000. An examination of the company's current assets and current liabilities showed the following changes accounts receivable decreased $10,800; merchandise inventory increased $25,000; prepaid expenses increased $7,600; accounts payable increased $4,800. Calculate the net cash provided or used by operating activities.

$137,000

Explanation:

The cash flow statement categories the company's transactions in a financial period into 3 groups; these are operating, investing and financing.

The net profit/loss, depreciation, changes in current assets (other than cash) and liabilities are considered as operating activities including income taxes.  

The sale of assets, interest received, purchase of investments are examples of investing activities while the issuance of stocks, debt principal deduction (loan settlement), issuance of debt securities etc are examples of financing activities.

An increase in assets other than cash is an outflow while an increase in liabilities is an inflow. Depreciation and other non-cash expenses deducted in the income statements are added back while the non-cash income such gain on asset are deducted from net income.

The net cash provided or used by operating activities

= $128,000 + $37,000 - $11,000 + $10,800 - $25,000 - $7,600 + $4,800

= $137,000

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