Black Ice, a fictitious sportswear manufacturer, reported other operating expenses of $30 million. Prepaid expense increased by $4million, and accrued utilities payable decreased by $7million. Insurance and utilities are the only two components of other operating expenses.
How much cash did the company pay in other operating expenses?
Doubt : I have subtracted $4million and $7million both from the $30m since both are cash outflows, hence my ans was $19M, but the correct ans is $41million.
Can some one please explain why we are adding it and subtracting
Prepaid expense is a cash outflow because you are prepaying a future accrued expense. Reducing a liability (utilities payable) is also a cash outflow so these should both be added to accrued expenses to arrive at cash expenses.
This was helpful, what I thought was cash outflow should be subtracted since cash is being reduced and cash inflow should be added as cash is being increased… But in this case we are adding cash outflows… Just want to confirm, are we adding it bcoz we are looking at the
Thanks for explaining it…
Can you please see, if this is also correct. I really appreciate your help here…
So, I am arriving at the same answer but sign is flipped.
-30-7-4= -41 (Since all are cash outflows)
Looks perfectly fine to me.