During the year, cash paid to suppliers was \$340,000. Cash received from customers was \$580,000. Cash paid for operating expenses totaled \$64,000. Depreciation expense totaled \$16,000. The company also purchased equipment for \$35,000. Using the direct method, what is the cash provided by operating activities?

• A. \$125,000
• B. \$141,000
• C. \$160,000
• D. \$176,000

Answer: (D)

Verified step by step guidance

1. Identify the cash inflows and outflows related to operating activities. In this problem, cash received from customers is an inflow, and cash paid to suppliers and cash paid for operating expenses are outflows.
2. Calculate the total cash inflows from operating activities. Here, the cash inflow is the cash received from customers, which is \$580,000.
3. Calculate the total cash outflows from operating activities. This includes cash paid to suppliers (\$340,000) and cash paid for operating expenses (\$64,000).
4. Subtract the total cash outflows from the total cash inflows to determine the net cash provided by operating activities. This is done by subtracting the sum of cash paid to suppliers and cash paid for operating expenses from the cash received from customers.
5. Note that depreciation expense is a non-cash item and does not affect the cash flow calculation when using the direct method. Similarly, the purchase of equipment is an investing activity and does not impact the cash provided by operating activities.