Question

Canyon Tours showed the following components of working capital last year:

a) What was the change in net working capital during the year? (negative amount should be indicated by a minus sign)

b) If sales were $36,000 and costs were $24,000, what was cash flow for the year? Ignore taxes.

	Beginning	End of Year
Accounts Receivable	24,000	23,000
Inventory	12,000	12,500
Accounts Payable	14,500	16,500

Answer 1

(a)-Changes in Net Working Capital

Changes in Net Working Capital = Working Capital at the end – Working capital at the beginning

Working Capital at the end = Current assets – Current Liabilities

= [$23,000 + $12,500] - $16,500

= $35,500 - $16,500

= $19,000

Working Capital at the beginning = Current assets – Current Liabilities

= [$24,000 + $12,000] - $14,500

= $36,000 - $14,600

= $21,500

Therefore, the Changes in Net Working Capital = Working Capital at the end – Working capital at the beginning

= $19,000 - $21,500

= -$2,500 (Negative)

“Changes in Net Working Capital during the year = -$2,500 (Negative)”

(b)-Cash Flow for the year

Cash Flow for the year = Sales – Cost – Changes in Working Capital

= $36,000 - $24,000 – (-$2,500)

= $36,000 - $24,000 + $2,500

= $14,500

“Cash Flow for the year = $14,500”