Assume net income was $100,000, depreciation expense was $8,000, accounts receivable decreased by $7,500, and accounts payable decreased by $2,500. The amount of net cash flows from operating activities is:

Operating cash flow

100,000+

8,000 +

7,500 -

2,500

= $113,000 net cash flows from operating activities.

Explanation:

When calculating operating net cash flow we will add depreciation back to net income because it is a non cash expense, and any increase in current assets will be subtracted from operating cash flow, any decrease in current assets will be added to operating cash flow. Also an increase in any current liabilities will be added to operating cash flow and any decrease in current liabilities will be subtracted from operating cash flow.

In this case we will start from net income then add depreciation expense to it, after that we will add 7,500 because accounts receivable which is a current asset is decreasing, and we will subtract 2,500 because accounts payable a current liability is decreasing.